An Exchange About the Excise Tax With Ezra Klein of the Washington Post

Ezra Klein has responded thoughtfully [1] to my criticism of him.  I felt he should have mentioned the numerous studies which challenge the assumptions behind the excise tax, given his strong support for the tax. I'm glad he's done that.  After all, the tax is expected to affect one in every five benefit plans (by 2013 or 2106, depending on whether you believe the Mercer consulting group or the CBO).  When something's likely to affect tens of millions of Americans, it's critical that we look at all sides of the issue.

Ezra's defense of the tax less unequivocal than it was as recently as the day before yesterday [2].  "My argument is not that the excise tax is without problems, or sure to work," he says, ".. (a)nd I don't deny that (it) might fall flat."  If we agree that the tax has problems and may not work, we're making progress toward consensus.  

In defense of the tax, Ezra cites a November 17 letter signed by a number of leading economists [3] which voiced support for it.  Those economists believed, based on past wage and benefit trends, that reduced benefits would lead to higher wages.  But none of the economists who signed that letter had seen two separate surveys from analysts at the Mercer [4]and Towers Perrin [5] (pdf) consulting firms.  Only 18% of employers surveyed by Mercer indicated they would actually do so, and even fewer (9%) told Towers Perrin they would return benefit dollars to their employees if this tax were passed. 

Nor had they seen the paper by Gabel [6]et al. which Ezra acknowledges is "interesting."  Yet he argues that the excise tax is "a tax on generous plans" when considered "in aggregate," while Gabel and his co-authors found when reviewing their data that plan "richness" only accounted for 3.7% of the cost difference.  That's a pretty significant number.  Neither the authors (nor Milliman actuary Robert Dobson [7]) conclude that "the insurance market is mysterous ...," however, as Ezra suggests.  They isolate a number of factors that drive costs - factors such as employee age, region of residence, and gender - that would create an unfair and inequitable tax burden if this tax became law. 

Ezra makes an interesting point about the tax's ability to drive small employers into the exchange when an employee falls seriously, although I'll have to think about it further.  (Wouldn't a tax that drives sicker employees into the exchange hurt the exchange actuarially?)  He's also intrigued by economist Henry Aaron's proposed revisions to the tax, as am I - but the Aaron proposal isn't on the table.

He also raises the issue of the "meta-question" behind my question, saying it was never his intention to be a comprehensive source for all health policy findings (at least that's my interpretation of his post; you should read it yourself.)  Fair enough.  But I would still argue that whenever any one of us argues strongly for a policy it's probably a good idea to address counter-arguments (hence this reply).  Even more so for new and seemingly contradictory studies ...

My key take-away is this:  The argument in favor of the tax is based on theory that's derived from long-term trends.  The argument against it is based on concrete actuarial and economic studies, using actual benefit plan data and the stated intentions of real employers.  To me that's a slam-dunk. Others disagree.  That's why we should continue to have an open dialogue.  I hope it continues.