My friend, Justin, posted this radio interview with economist, Jonathon Gruber, on why the Cadillac Health Care Tax is a good idea. Allow me to summarize his points:
- People with insurance that has a low-deductible (like people who have Cadillac plans) overuse medical treatments. For instance, I get a headache and go get an MRI to find out it's just a headache. I do this because I don't pay for the MRI directly (in general I'd only pay a small fraction.
- Wages will rise after the Cadillac Tax is passed.
I agree with arugment 1. People do probably overuse health services since they don't pay for them. If people have to pay for them, then they'll use less. This can be good and bad. Let's say that the MRI revealed something and my life is saved at a realatively low cost. Paying for the MRI discourages my use and thus increases costs later.
His whole point is that on net, this will be cheaper for the economy. We save more medical resources by doing less useless medical spending than we lose by having that later spending.
Argument 2 works for me...mostly. Wages and fringe benefits are substitutes for employees. Probably perfect substitutes. If my employer pays an additional dollar of my health insurance, that is one less dollar that they have to pay me in wages.
His argument, is that by taxing Cadillac plans, people switch to cheaper plans which means (under competition) wages rise.
My concern is this: if people switch out of the Cadillac plans into high-deductible plans then the premiums on those high-deductible plans ought to start rising (according to economic logic on substitutes). This will have a downward pressure on the wages of the people who were previously not on the Cadillac plans.
I'm not sure how this all would play out. It seems like it depends on how many people opt to pay the fine for not having insurance.
