The healthcare tax breaks in last week's budget bill will not undermine the Affordable Care Act's insurance coverage expansion. But they will erode the law's limited effort at controlling costs.
The big winners included some of healthcare's more powerful special interests, which proved once again that a few million dollars spent on lobbying in Washington can generate rates of return that would make a hedge fund manager envious.
Take the medical-device industry, which spent just under $10 million in lobbying in the 2014 and 2016 election cycles, according to the Center for Responsive Politics. They won a two-year reprieve on the 2.3% excise tax on medical devices, costing the U.S. Treasury $3.4 billion, according to the Congressional Budget Office. That's a return of $340 in tax breaks for every dollar spent on lobbying.
The device industry's assertion that eliminating the tax will lead to more investment has no basis in reality. Industry research and development spending closely tracks sales, and sales have slowed in recent years because of health systems' pushback on new devices' high prices. Repealing the device tax will serve only to shore up devicemakers' bottom lines.
The one-year reprieve on the health insurance premium tax won by insurers, slated to raise $12 billion in 2017, at least will be shared with consumers. Health insurers operate in a heavily regulated environment where premiums are affected by costs such as taxes. Savings from the premium-tax delay should get passed on to consumers.
The biggest winners, though, were employers and unions, whose wages support generous, tax-exempt health benefits. The Cadillac tax on high-cost health plans, which would have raised $9 billion in 2018 and 2019, will be postponed for two years.
Economists across the political spectrum opposed repealing the tax. Individuals and families in high-cost plans do not face the high deductibles and copays imposed on the rest of the insured population. That undermines price competition, especially in high-cost markets or those with prestigious academic medical centers.
Restoring the Cadillac plan tax in 2020 will be extremely difficult politically, no matter which party controls the White House. The likelihood is that this tool for encouraging price transparency and healthcare competition is gone forever.
That's too bad. Allowing the tax would have set the stage for repealing the federal tax exemption for all health benefits. Collecting those taxes and using the money to subsidize premiums based on financial need would create a fairer tax system, and generate greater competition.
I will give the last word to a new study from the National Bureau of Economic Research (NBER), which is shaking one of the fundamental assumptions behind delivery system reform. Researchers, including a former antitrust official at the Federal Trade Commission, found that differences in provider prices drive spending variations among privately insured Americans, while differences in the quantity of services provided drive variations in Medicare spending.
What's the takeaway from that study? First, it demolishes the argument that cost-shifting isn't a major factor in hospital pricing. The New York Times used the concentrated market of Grand Junction, Colo., to illustrate a place where Medicare use can be very low, yet private prices very high.
Let's take a closer look. Colorado has the seventh-lowest per-capita healthcare spending in the country, more than 12% below the national average. Yet the proportion of its population on Medicare and Medicaid is higher than the national average. Despite its Medicaid expansion, the state's uninsured population remains a full percentage point above the national average. Before the expansion (the period covered by the NBER study), Grand Junction's uninsured rate was five percentage points higher than the national average, according to the U.S. Census Bureau.
Might the cost-shifting associated with those facts, rather than market concentration, help explain the high prices paid by Colorado's privately insured residents?
Second, think what might happen if employers in that community were hit by the Cadillac tax. Might they begin examining why they are overpaying for their employees' health benefits? Might they finally confront the gross inequities and false market signals sent by our convoluted healthcare finance system?
Because of Congress' actions last week, we may never find out.
I wish all our readers a very merry holiday season and a happy, healthy and prosperous new year.