McArdle goes to bat for the most indefensible element of the analysis: the decision to avoid estimating the response to the tax on high-cost insurance plans (which is, in fact, the whole point of the tax), and simply pretend that everything will remain unchanged except that a lot of people will pay a large new tax that they don't have to pay. Moreover, she conscripts the Congressional Budget Office to help with the argument: "You might think that everyone is going to structure their benefits to get around this tax," McArdle writes. "But the CBO expects us to collect quite a bit of money from this tax."
Not quite. The Congressional Budget Office projections (which are, in this case, the Joint Committee on Taxation's projections, as the CBO doesn't estimate tax revenues) actually suggest that the bulk of the tax's revenues will come from the response to the tax, not the payment of the tax. As the New York Times reports, the JCT believes that "about $142 billion of the 10-year total of $201 billion to be raised by the [excise tax] would come from increased income and payroll taxes." In other words, the vast majority of the revenues would come because employers would "structure their benefits to get around this tax." Workers would receive more of their compensation in wages and less in health-care benefits, and because wages are taxable and health benefits aren't, tax revenues would go up.
(Megan did, in fact, acknowledge this error prior to Ezra's post.)
There is at least one broader issue with Ezra's point. Common sense tells you that a tax on "Cadillac" health insurance plans will encourage employers to offer cheaper benefits packages. It's ridiculous to argue otherwise, unless you have strong empirical evidence to back up your claim. Pigovian taxes are, after all, designed to alter behavior in exactly this way. So Ezra is clearly right on the merits here.
But, if Ezra is right, isn't this a huge problem for the administration? If workers with good health benefits will likely be forced into cheaper plans, how can the president continually claim that those who like their health insurance can keep what they have?
FactCheck has already called out the president for this canard, but his argument seems particularly disingenuous now that JCT is actually basing its revenue projections on the idea that some employers will offer cheaper benefits packages if the America's Healthy Future Act (pdf) passes.
Don't get me wrong, I'm a big fan of taxing health insurance -- especially Cadillac plans. I think it's good policy, and it's a step away from the employer-based health insurance system. What frustrates me is the president's insistence that we can have our cake and eat it, too.
If we want to control health care costs, we have to discourage overuse of the system. That means pushing people away from big benefits packages, not telling them that they can always keep their current health insurance.
Update: One more point about Ezra's previous post on the PWC report. Ezra apparently takes exception to the authors' assumption of "full cost-shifting of cuts to public programs." This is another way of saying that doctors and hospitals will try to make up for cuts to their reimbursement rates from public programs by increasing their reimbursement rates form private programs.
Have you ever heard of that before, in any industry? If Blockbuster decides to cut costs to consumers by negotiating lower payments to movie studios, does Netflix send out a sorrowful e-mail explaining that it will have to increase its membership fee because it now needs to make higher payments to movie studios?
Well, no. But that analogy makes absolutely no sense. The health care industry is different from the movie rental industry -- and pretty much every other industry -- for a number of reasons. (I would again encourage you to listen to the latest episode of This American Life.)
Ezra must know this. Paul Krugman -- whom Ezra once interviewed -- has repeatedly argued that the health care market is like no other market . . . and, in fact, shouldn't be treated as a market at all.
So why is Ezra suddenly trying to pretend that buying health care is in any way equivalent to renting videos? Maybe he's right that cost-shifting won't be a problem, but this comparison is totally spurious.
Update II: Ezra takes a more nuanced position on cost-shifting:
To be clear on my position here, I think there's probably some level of cost-shifting that's between the zero percent that some advocates would like and the 100 percent that the insurance industry suggests. The Lewin Group estimated (pdf) 40 percent, and that sounds reasonable enough to me, though I'd be open to further evidence.
He also makes another rather obvious point:
It's true that a hospital's costs are relatively inelastic on a year-to-year basis, but they're more elastic over time: if they had to adjust to less revenue than they'd like, they'd make certain changes to the way they do business.
Well, yeah. Isn't that, like, the definition of the long-run?