The voices of Tax Policy Center's researchers and staff
NPR interviewed me about “gold plated” health plans. I am a big proponent of capping the tax benefits for overly generous plans as part of health reform. Critics responded that many low-income people with modest insurance plans could be hit by a cap simply because they work for a small firm, have health problems, are old, or live in a high-cost region.
It's a valid point if a cap were enacted in isolation. Much of the variation in insurance premiums is not attributable to differences in the generosity of benefits. But some of it is.
The nice thing about the reform proposals being considered by Congress is that it would easy to identify the more generous insurance plans. Whatever changes are enacted will almost surely include some way for uninsured individuals and small firms to buy insurance on terms similar to large firms.
The ideal way to limit tax benefits for health insurance is to set a cap based on the cost of the least expensive plans offered through the new health insurance exchanges--the proposed marketplaces for individuals and small businesses. This should include at least one comprehensive HMO-type option with copays and deductibles that are affordable to low-income households. Plans less expensive than the benchmark would be tax-free. More expensive plans, offering more generous coverage, would be subject to tax. Individuals could avoid the tax by buying the relatively economical plans. Since the cap level would be based on premiums in the exchanges, it would automatically reflect regional variation in health costs.
In other words, in the context of health market reform, a fair cap could easily be designed. It could contribute significant revenues to help finance reform. And, by discouraging excessively generous health insurance coverage, it could help lower health care costs.
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