Obama Said to Support Tax on Health Insurance

According to the Associated Press, President Obama has encouraged House leaders to support the Senate's excise tax on high-cost insurance plans. As we have written before, this is preferable to either a surtax on high earners or an increase in the Medicare payroll tax for financing health care reform.

Although far from perfect, the excise tax has two major advantages. First, because it is a tax on health insurance, it will generate a revenue stream which grows as quickly as health care does -- and in fact more quickly than the costs of health insurance expansion. And secondly, this tax can actually help to slow overall health care cost growth, which is perhaps the most important goal of reform.

This graph demonstrates our first point, showing how much faster the excise tax grows than the payroll tax increase. The difference is similar with reference to the surtax on high earners.


We previously offered an analysis which helps to confirm our second point. But alternatively, one need only ask President Obama's chief economic advisor. According to Christina Romer (emphasis added):

"A tax on high-priced insurance plans... will encourage both employers and employees to be more watchful health care consumers... It will discourage insurance companies from offering high-priced plans that would otherwise eat up larger and larger shares of workers' wages... A policy such as this is probably the number one item that health economists across the ideological spectrum believe is likely to stem the explosion of health care costs.

We know that many constituencies oppose taxing health insurance, and that there will be pressure to weaken the tax in negotiations. But we strongly encourage the Senate to hold its ground, and work with the House to strengthen the tax if possible. It is one of the best ways to ensure health care reform will truly be fiscally responsible.