How Many Economists Does it Take

How Many Economists Does it Take

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How Many Economists Does it Take
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Calendar09 October 2015

As I’ve written before, I have a few concerns with the excise tax on high-cost health plans. A major goal behind the tax is to remove the incentive to offer overly generous coverage, but using cost as the yardstick to measure richness will catch many plans that are “high cost” for reasons other than plan design — for example, because health care costs more in some locations than others. This seems so obvious that I keep wondering if I’m missing something.

So I was eager to read this interview with Harvard economist David Cutler, who’s a supporter of the tax. But, sad to say, he couldn’t convince me that the tax, as currently designed, will have all the benefits he hopes it will. Economists hope that the threat of having to pay the tax will cause employers not just to shift cost to employees, but to negotiate harder with providers and implement cutting edge measures such as…encouraging generic drug use. Well, I don’t have to tell the employers reading this that virtually every health plan includes generic incentives. But don’t take our word for it — according to the FDA, nearly 8 of 10 prescriptions filled in the US are for generic drugs, which means there’s not a lot of room for more savings there. It’s this kind of naivety about the real world of employer-sponsored health plans that makes it hard to feel confident that the excise tax will have the good effects that economists hope for. Will employers increase employee compensation as they pull back on health benefits to avoid hitting the excise tax threshold? David Cutler thinks they will. But when you actually ask employers, that’s not what you hear.

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