The Senate outlined a plan for using taxation as a means to provide the funding. A cornerstone is the roll-back of the tax exemption for employer provided healthcare benefits. These taxes could be based on income or on the value of the plan or a combination of both. Also considered is the scaling back or elimination of the flexible spending accounts used by employees to offset health care costs with pre-tax dollars. The burden on the tax-payer is obvious.
Also under consideration is an increase to the alcohol tax as well as an institution of a tax on sugar containing beverages. The goal is not only to raise revenue but also to reduce the consumption of these items which contribute to the development of disease and result in an increase in healthcare expenditure. These taxes may indeed have an effect in driving a wanted behavior.
Is there a similar behavioral benefit to the taxing of the employer provided healthcare benefits? Perhaps the employee will seek the lowest cost plan if the benefit value is taxed. If the taxes are levied based on income there will be no effort to reduce usage.In general such taxes do not provide incentive to make efficient, cost effective choices and will not have an impact on usage, a key driver of healthcare cost.
On May 12, a coalition of the healthcare providers and insurers pledged to reduce the national healthcare spending by 1.5 percentage points per year from the projected growth rates. The promise was to accomplish this goal through advances in efficiency. So far there have been no concrete plans presented as to how these competing groups will be able to accomplish this.
Financial incentive can drive change. Alignment of incentives has been very effective in driving generic substitution. Will the taxation of the healthcare benefit provide a similar alignment of financial incentive? I think not. When the costs of providing universal healthcare coverage escalate will the solution be increasing the tax? Can we tax our way to a better healthcare system?
