Turbocharged health spending

It’s more than a little ironic that the problems inherent to the design of Obamacare are causing its failure so much more rapidly than expected that it may end up advancing conservative solutions to the problem of healthcare costs.

From The Politics of ObamaCare in today’s WSJ:

The Cadillac tax is supposed to reduce health spending by shifting the mix of employee compensation. Since the wage and price controls of World War II, job-based benefits have been excluded from taxation, so paying workers in health care is cheaper than raising cash wages. This has helped turbocharge health spending.

Capping the tax exclusion is the superior solution, but President Obama ruthlessly attacked John McCain in 2008 for proposing that. The Cadillac tax is his political cover to repair the economic distortion of the exclusion with another distortion. CBO expects the tax will raise $91 billion over 10 years—but notably, not because businesses will pay the tax. Instead, they’ll cut health benefits, wages will rise and thus more ordinary income will be exposed to income and payroll taxation.

But will the tax work as designed? So many business couldn’t adapt their plans in time to avoid the tax because the exclusion has become less of a distortion in this slow-growth era. Wages have been rising so slowly that employers have shifted en masse toward consumer-directed health plans with higher deductibles and copays. The decline of first-dollar coverage that worked like a business-run version of an entitlement has helped moderate health spending, and there are fewer Cadillacs left.

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