Monday, December 28, 2009

Now, About Those Cadillac Plans

We read that all health economists favor the tax on "Cadillac" health plans as a way to control costs. If that's really what they think, I'm willing to listen. But I'm skeptical.

Yes, there's a strong argument for taxing things like free spa weekends. These are essentially a tax dodge, driven by the fact that wages are taxed and health benefits aren't. But it seems unlikely that benefits like this are huge contributors to the high cost of American health care.

A lot of plans are high-cost simply because they have more complete benefits. For example, some include vision and dental coverage. But basic vision and dental coverage should be (in my opinion) part of every basic plan. There are a lot of low-income people who just can't afford to get dental care, and never do, and as a result have bad teeth. And eyeglasses? OK, maybe not Armani. But none?

Other plans are higher-cost because they have low copayments and deductibles. The basic idea of co-payments and deductibles in health insurance is the same as in auto insurance: to accept some increase in the risk people bear in order to make them pay part of the costs of their decisions. The hope is that making the insured bear some part of the cost will lead to less frivolous use of the resources, such as, in the case of health care,  visiting the doctor every day for insignificant complaints or just to have someone to chat with.

The question is how much cost-bearing is the right amount. This is especially tricky in health care, because bearing more of the cost may result in not going to the doctor enough, leading to more high-cost emergency room visits and hospitalizations, as in this study. And covering 60% of the cost, as the lowest-cost plan in the Senate bill does, seems to my inexpert eye not enough to keep people from getting into serious financial trouble from health problems.

Bear in mind that in some countries patients have no copayment, and yet those countries have much lower health costs than we do. I don't know what fraction of health care costs are accounted for by patients choosing to overuse services, but I'd guess (and that's all it is) that it's more than negligible but less than large.

So I'd have to see more evidence before I accept the claim that the Senate's tax on high-cost plans will significantly improve efficiency. And I'm totally mystified by the claim that taxing the very rich, as the House bill does, is an inappropriate way to pay for health care.

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