No cost control here

National Journal – Health Care, January 11, 2010

The idea that the massive new taxes raised in either House or Senate health care bills are in service of overall cost control is just one of the great many collective fictions proponents of doing something on health care have perpetuated. The House doesn’t even head fake in this direction. It offers pure wealth redistribution, raising its money through general taxation on high earners.

The Senate made great efforts to sever the link between Medicare taxes and the Medicare program, pulls billions from taxes on insurance, pharmaceutical and medical device companies, and hilariously tanning salons, a testament to how truly pathetic the horse trading became in the search for a fix.

Some basic points have been missing from the analysis.

· Corporations do not pay taxes, only people do. Insurance has long been treated as a cash cow for politicians who tax premiums and spend the money on unrelated projects. Insurance companies merely increase the price that the consumer pays. This will be the same for pharmaceutical and medical devices.

· Taxes raise the price of goods and services. Consider that when politicians need money, they raise taxes on tobacco, arguing that it will render cigarettes dearer and, therefore, reduce consumption. Yet in deluded pursuit of not even close to universal health care, we are to believe that taxing health care products and services will reduce costs. It most certainly will not. At best, people will pay more and get less.

· Costs are not the price that a payer, call it a corporation or the government, shells out for a good or service, but the total resources devoted to an endeavor. These bills will radically increase—not decrease—health care costs. These bills will shift more resources to health care, extracting the funds from American households in disguised taxation—consider the loss of Flexible Spending Accounts—and funneling it through Washington.

This last point brings us directly to the attack on the now disparaged “Cadillac” health plans. A few short months ago, these plans were not the problem to be attacked, but rather the gold-standard, employer-provided benefit package that politicians once wished for everyone. The thresholds are not designed to penalize specialized executive carve out packages, but rather standard corporate plans. They are not attacked in a way that will reduce costs, but will merely shift them to employees, rank and file workers, who, at best, will be left with less generous health coverage and more taxable income. This can’t be denied, and it is the reason that Democrats are scrambling to exempt their best source of funding—union workers–from this fate. Finally, the press reports it as health insurance which is being taxed, but the reality is that it is all health related benefits—dental care, eye care, and flexible spending, which itself has been cut in an effort to raise billions of dollars from ordinary Americans.

The end result will be an amazing push/pull of government-mandated benefit packages and out of pocket spending thresholds and punitive excise taxes on the funds necessary to purchase these packages. A cynic might note that the reason that the Democrats left a major role for the insurance companies to be the public utilities administering the program is so that they can continue to blame them for the inevitable results: higher taxes, less disposable income, higher health care spending and millions still uninsured.

Nothing contained in this blog is to be construed as necessarily reflecting the views of the Pacific Research Institute or as an attempt to thwart or aid the passage of any legislation.

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