The debate over proposals to tax health insurance plans is confusing and frustrating. The proposals are usually described as a tax on “gold plated” or “Cadillac” health coverage. According to the media and many spokespeople on the Hill, these health plans with “overly generous benefits” supposedly encourage overuse of medical services and drive up the overall costs of health care. People express outrage that Wall Street executives have expensive tax-subsidized health benefits that include coverage for cosmetic surgery. Is this really a problem? If we fix this, will it raise lots of revenue and bend the cost curve? I don’t think so. The problem is not “Cadillac” coverage, whatever that is.
I know that some economists believe that people ought to have more “skin in the game” by paying a significant share of the costs of medical services they receive. I agree, but only up to a point. Health care services are not like other goods and services. If you give me more money, I might build a fancier house, buy a new car, go to more concerts, fly first class, etc., because I like all of these things. Frankly, I don’t particularly like going to the doctor, and I wouldn’t spend my extra income on more blood tests, CT scans, colonoscopies, or surgeries (ouch!). It’s fine to have modest copayments to discourage unnecessary doctor visits or to encourage use of generic instead of brand name drugs, but onerous cost sharing when someone is seeking medical care won’t solve our problem. A tax on “Cadillac” plans won’t raise much revenue, and it won’t bend the cost curve in any significant way.