The NYT has an article on the proposal to tax higher cost health care plans in Senator Max Baucus' health care proposal. One of the main points is that rising insurance premiums could eventually make most policies subject to the tax, which has a cutoff indexed to the overall inflation rate. While this is true, it will likely have little consequence for most plans since the tax is only applied to the increment above the cutoff, not the whole plan. This means that the tax on a plan that only slightly exceeds the cutoff (originally proposed as $21,000 for a family plan) would only apply to the portion above the cutoff. If a plan exceeded the cutoff by $200 (costing $21,200), then the tax would be $70 a year. If the divergence between health insurance costs and inflation persists long into the future, then all plans will be subject to the tax and everyone will therefore have a higher tax bill. Of course, in this case, rising health care costs will have wrecked the economy, so no one will care about whether their health insurance is being taxed. The article also argues that small businesses are more likely to have insurance subject to the tax because insurance companies charge them higher rates. This is true at present, but it should not be true if the system of insurance reform works.
--Dean Baker
