Commentary

Fun Taxes on Health Care

If you want less of something, you tax it more — if you want more of something, you tax it less. That’s a pretty basic principle of economics. And by that principle, one would think, given that Obama and his fellow Democrats have made providing “affordable” medical coverage to every man, woman and child in America their holy grail, they would do everything in their power to lower taxes on insurance plans. Right? Wrong.

Obama’s ambitious overhaul of our health care system has hit – oh, what does he call it? – “bumps” on the road, thanks to its astronomical $1 trillion-plus price tag. So Democrats are desperately looking for ways to pay for it – lest the “bumps” turn into “boulders” and crater their reform agenda. One idea that was floated to raise revenues was a variation on the McCain plan to remove the tax deduction that existing employer-provided health care plans enjoy and using the revenue to subsidize coverage for the uninsured. But that trial balloon was quickly popped by, among others, labor unions who, over the years, have used this deduction to strong-arm their employers into providing fully loaded “Cadillac” plans to their rank-and-file. If these plans were suddenly taxed, companies would cut back on their coverage, forcing union members to make do with plans similar to what ordinary mortals enjoy.

So Massachusetts Democrat, Sen. John Kerry – former presidential candidate best known for his habit of flip-flopping on issues – has had another brain wave, reports the National Journal: Instead of taxing health care benefits, he wants to tax insurance companies that sell such expensive “Cadillac” plans (never mind that often these companies have no choice but to do so because of state mandates requiring them to cover everything from routine colds to hair prostheses to Viagra).

Although Kerry is with-holding further details, the beauty of his idea is that it would allow Obama to keep his promise of not raising taxes on anyone making less than $250,000 a year while actually raising them! Similarly, Sen. Charles Schumer, D-N.Y., is mulling a tax on insurance firms to raise approximately $100 billion. Senate Finance Committee Chairman Max Baucus – a Montana Democrat – thinks these ideas are “interesting, they’re creative; some are kind of fun.”

It’s just great that our elected representatives are having “fun” thinking up of secret ways to tax us. We wouldn’t want them to feel bad or anything you know, but here is an un-fun fact for them to ponder: Insurance companies won’t just swallow the higher taxes, of course. They will likely pass them on to patients in the form of premium increases. And for every 1% increase in premiums a few hundred thousand people loose coverage.

This would be insane at any time, but taxing insurance companies when you want them to sell coverage to more people exceeds even Congressional standards of insanity.

But then sanity is no fun!

Shikha Dalmia is a senior analyst at Reason Foundation, a nonprofit think tank advancing free minds and free markets. The archive of her latest work can be found here at Reason.com.