Speaking of not being news, it certainly should come as no surprise that, the Congress having moved to extend healthcare insurance coverage (without expanding the actual amount of healthcare available, a problem the continues unremarked upon), there’s now agitiation to minimize any cost control aspects (or “bending the curve” as White House budget director Peter Orszag put it), in this case restricting, reducing, and generally rendering ineffective the tax on “Cadillac healthcare plans”:
Another argument against the Cadillac tax is that it would unfairly apply to policies held by workers who are older, sicker or in higher-cost areas — not just investment bankers whose plans include free gym memberships. But the Senate plan deals with this objection by pushing up the level at which the tax kicks in ($26,000 for a family plan) for workers in certain industries, including law enforcement officers, construction workers and miners. If anything, the risk is that too many occupations are being carved out. In addition, the thresholds are increased in the 17 highest-cost states by 20 percent in 2013, 10 percent in 2014 and 5 percent in 2015.
The most likely compromise on the tax would raise the threshold even higher, for everyone. That would be a mistake. It would reduce the impact on controlling costs and drain badly needed revenue; a $26,000 threshold would bring in about $100 billion less through 2019 than the existing $23,000 level. Also counterproductive would be any move to further loosen the indexing and let the threshold grow more quickly. The point, after all, is to try to keep the growth of health costs as close as possible to the overall rate of inflation.
In that formulation healthcare costs will continue to grow too fast—much of the general rate of inflation is healthcare costs. That’s a positive feedback system.
However, the moves to prevent even the most modest and obvious moves at cost control are hoisting the Jolly Roger on healthcare reform. We’re not going to control costs or find some fiscally sound way to pay for healthcare. Apparently, the intent was to let the flywheel spin off all along.
Dave,
Do you have an data on historic inflation rates with health spending removed?
I’ve sat down to work it out a couple of times. Let’s put it this way. If the healthcare sector comprises 16% of the economy, healthcare costs are increasing at 6% per year, and the general inflation rate is 1%, then 100% of the general inflation rate is due to the healthcare sector. It’s been pointed out by people other than me that much of the real compensation growth over the period of the last thirty years has been in the form of increases in healthcare benefits.
Andy –
As you probably know, the index is simply an aggregate of a basket of prices. So I’m sure if you fished around you could find the data streams at one of the usual suspects: BLS, Fed etc.
The more difficult task may be to understand any weightings or other adjustments they might place on the data. eg Sometimes food and energy are removed (under a “too volotile” theory). I’ve always thought that odd given their importance in the consumption make-up of the Average Joe.
I think the thinking is that you don’t want to clamp down a spike in prices because some country becomes more bellicose over in the Middle East. Doing so could result in a recession and do nothing to energy prices as it really has nothing to do with inflation.
Steve V –
I’m sure you are correct. I guess my comment was a bit flip in simply noting that consumer perceptions will differ from a scientific analysis of true inflation.
eg I’m sure consumer electronics are part of the index. But imagine what the temporary effect of introduction of, say, the Wii, has on consumer electronics prices. Do you exclude, or include the Wii?
All in all it seems like a tough set of data to handle properly. Perhaps “the inflation rate” should be considered as correct within a corridor of potential rates.
I see this as responding to two different problems. From the right, you have claims that this will increase taxes on some below $250,000. From the left, there are some union and other supporters who will be affected by this. I hope they ignore both groups, but since it has to pass with 60 votes, they may not.
Steve