In a recent op-ed in the Washington Post, MIT economist Jonathan Gruber defended the tax on “Cadillac” plans in the healthcare overhaul bill passed by the Senate. The tax is supported by the administration. The op-ed did not disclose, as has since become known, that Gruber has received almost $400,000 under a consulting contract with the administration while touting its healthcare proposals.
The failure of the op-ed to disclose this compensation arrangement may be poor judgment. But Gruber’s analysis of the merits of healthcare overhaul and of the Cadillac tax is the greater error.
Gruber argues that the tax is not a new tax because it would simply eliminate the special tax break for health insurance that workers receive from their employer. He argues this new tax “is almost universally favored by health policy experts.”
This is not true. Gruber has wrongly translated experts’ view that the tax treatment of employer-provided insurance should be reformed into support for the Cadillac tax in the Senate bill. The proposed Cadillac tax he supports is a politically crafted device that goes in the opposite direction from what the policy experts advocate.
In fact, the ability to hide the tax from individuals is what made this tax attractive to senators. And it is precisely the reason that most policy experts who call for reform of the current tax treatment of employer-provided insurance to encourage greater choice by families oppose this contrived Cadillac tax.
The Cadillac tax will likely increase healthcare costs. It fails to give individuals choice. It does not address the tax exclusion for employer-provided insurance. It does not introduce more cost-effective incentives into the healthcare system. And it is intended to fund a government takeover of the healthcare system. It is the wrong way to reform the healthcare system.In a 2011 video that recently surfaced, Gruber spoke of the tax subsidy:
"It turns out politically it's really hard to get rid of, And the only way we could get rid of it was first by mislabeling it, calling it a tax on insurance plans rather than a tax on people when we all know it's a tax on people who hold those insurance plans."