Insurance Industry Takes Out Hit on Health Reform

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The attitude of the health insurance industry to the basic framework of Obama-style health reform has generally been pretty positive. They hate the public option idea, but have otherwise been fairly supportive. And that’s because Obama-style health reform is very solicitous of their interests. Even with a public option, it’s still solicitous of their interests. And without one, it’s quite nice to them. But none of the plans on the table, including Baucus’ plan (in his case largely because of the excise tax issue) achieve the dream of utterly maximizing the interests of the insurance industry. Hence they’ve paid PriceWaterhouseCooper to write a report forecasting doom unless the plan is further altered to cater to them.

I think this is largely not worth responding to, but Ezra Klein highlights a good illustrative example of the difference between a serious analysis and a special interest hit job:

PricewaterhouseCoopers, Potsdamer Platz (wikimedia)

PricewaterhouseCoopers, Potsdamer Platz (wikimedia)

A footnote — how come the good stuff is always in the footnotes? — on page E-2 of the report sort of gives away the game. It reads: “Impact assumes payment of tax on high- value plans, full cost-shifting of cuts to public programs, and full passthrough of new industry taxes.” That’s written to obscure, but what it means is that the report assumes no behavioral changes in response to new policies.

Now that’s just silly. They’re saying that if we start taxing an expensive health plan the same way we tax income, that this will result in no change in the extent to which people receive expensive health plans from their employers as part of a compensation package. And it further assumes that 100 percent of the added cost of the now higher-taxed plan will be passed on to the consumer. The former is absolutely ludicrous, and the two assertions make no sense in conjunction with each other. It could be that the tax subsidy plays little role in determining the price of insurance to consumers, in which case ending it might lead to little behavioral change. Or it could be that the tax subsidy plays a huge role in shaping behavior, in which case the mechanism would be that the subsidy is overwhelmingly (or as PWC would have it, entirely) passed on to consumers. But it’s nutty to believe that the current tax subsidy is both a huge factor in determining the price of insurance and also completely ineffective at shaping behavior.