I argue against the excise tax for the following reasons:

a. The tax penalizes the middle class by cutting health care. 

b. The tax does not increase wages, and, now, there is evidence against the argument that it does. These arguments favoring the tax relied upon correlation rather than causation.

c. The tax assumes health care consumers are rational based on right wing ideological assumptions. These assumptions are often paraded around as fact, and, indeed, this can be seen with regard to how often issues of correlation on wages are quickly assumed to be causation for the purposes of buying into the right wing ideological frames. I do not assume intend here. I merely assume that one has bought intentional or not into right wing assumptions.

d. As a corollary, the argument assumes we will "bend the cost curve" is also false. This depends on assuming monopolies will stop being monopolies and that consumers will not under or overestimate their need for health care services. 

e. Finally, the tax is regressive rather than progressive. Thus, the ideological reason for the tax is flawed.

This is an extremely long post, and for that, I apologize, but often in these debates people attempt to reduce complicated debates to talking points. I want to delve into why I have a problem with the assumptions, and that means really covering all angles of the discussion with supporting evidence.

a) The tax penalizes the middle class by cutting services; and this will lead to worse health care outcomes:

The unspoken basis for adding this tax is to cut services for the middle class.  Bob Herbert describes the situation here:

"Proponents say the tax will raise nearly $150 billion over 10 years, but there’s a catch. It’s not expected to raise this money directly. The dirty little secret behind this onerous tax is that no one expects very many people to pay it. The idea is that rather than fork over 40 percent in taxes on the amount by which policies exceed the threshold, employers (and individuals who purchase health insurance on their own) will have little choice but to ratchet down the quality of their health plans.

These lower-value plans would have higher out-of- pocket costs, thus increasing the very things that are so maddening to so many policyholders right now: higher and higher co-payments, soaring deductibles and so forth. Some of the benefits of higher-end policies can be expected in many cases to go by the boards: dental and vision care, for example, and expensive mental health coverage.

Proponents say this is a terrific way to hold down health care costs. If policyholders have to pay more out of their own pockets, they will be more careful — that is to say, more reluctant — to access health services. On the other hand, people with very serious illnesses will be saddled with much higher out-of- pocket costs. And a reluctance to seek treatment for something that might seem relatively minor at first could well have terrible (and terribly expensive) consequences in the long run."

LINK

I previously discussed why this issue leads to worse outcomes regarding health care through the use of one article on the subject of higher costs leading to less use of needed health care services:

"Cost of health care can prevent some from seeking cancer treatment"

"I've been doing this for 37 years," he said "Deductibles used to be $250 to $500. Now deductibles for many people are $2,000, $2,500 or $3,000. That's a lot of money to pay out of pocket. When it was $250, it was easy to make five payments of $50 each. Now it's five payments of $500 each."

LINK

This article illustrates the core issue that will be increased by several magnitude by the excise tax. I mentioned this to others in previous conversations here and elsewhere online, and I have yet to see anyone provide any real evidence about how this under-utilization of necessary services will not lead to more unnecessary deaths. The best argument is that this is anecdotal, but we know from prior research that under insurance already leads to deaths. Thus, arguments about this being only anecdotal seems false. 

b. The tax does not increase wages, and, now, there is evidence demonstrating that the wage increase argument is based on correlation rather than causation. The deeper concern here for me is how we tend to buy into conservative frames. Thus moving the Overton Window right while claiming it is progressive.

Using arguments that are their core Reaganomics, proponents have favored the excise tax. Some label these conservative ideological reasons as progressive. They argue that by cutting health care insurance and thus saving the employer costs, they will increase the wages of workers. 

The supply side ideological assumption (not fact, but assumption) being that employers will pass this savings on to the employee. Why exactly this will occur is not clear given the stagnant wages over several decades that found 95 percent of the public not receiving wage increases despite rising GDP and higher levels of productivity. In depth review of the stagnant wage issue is outside of the scope of this article.  I have previously discuss how such stagnant wages have resulted in increased wage inequality that places us behind Europe. If you are interested in doing your own research, you can find a list of great articles and data through the Economic Policy Institute (EPI) here: LINK 

EPI continues to do great work on the issue of what's happening to the middle class, including on the latest efforts that will destabilize us. My ongoing thesis is that economic policies from the right that Democrats have adopted are leading to a decline in the middle class. This health care bill is the latest example of shifting the risk and increasing burden on the middle class that will further than decline. Elizabeth Warren discusses the decline of the American middle class here: LINK

Big Tent Democrat mentions EPI's effort to debunk the arguments for taxing health care benefits as means of increasing wages here:  LINK

I use the quotes that Big Tent Democrat highlights:

"One claim for the Senate excise tax has recently surfaced: that health care cost increases have been a major driving force in constraining wage growth and that wages will grow more strongly by curtailing employer health costs via the excise tax. This claim boldly asserts that health care costs are large enough (and the tradeoff with wages is large enough) to drive major changes in overall wages."

Here, I should point out that part of the issue is that people make ideological assumptions that are not based in causation. They are based in correlation. Anyone wanting to believe that the assumptions were facts rather than assumptions intentionally or unintentionally bought into right wing assertions. I have previously mentioned that part of the problem with debates is that people buy into assumptions- like neo-liberalism- as if they are facts rather than realizing they are assumptions. The gap between assumptions and facts is what makes one an ideologue. I believe that these conservative assumptions are false, but that's the subject of another diary.

Here's why assumptions that we think of as causation rather than just correlation matters:

"Clearly, this “health care theory of wage determination” is wrong, and other factors explain these overall wage trends [of the 1990s.] The simple explanation is that productivity accelerated in the mid- 1990s, and the low unemployment (and hikes in the minimum wage) facilitated faster wage growth. That this wage growth disappeared entirely in the 2002-07 recovery is not due to faster health care cost increases but to weak employment growth and employers’ ability to achieve increased profitability rather than pass on productivity gains to workers. This reveals a fundamental flaw in our economy: productivity gains are not passed on to higher living standards for workers."

Clearly those who believed that the data was causation engaged in confusing correlation with causation.

My argument to Steven M when we discussed the matter, which now seems justified, was that if the assumptions for the excise tax are wrong? What then? Rather than proceeding from the best case scenario, I took the conservative (no pun intended) view of what if the assumptions are wrong?

My believe is that policy should not be based on best case scenarios, but rather what if things go wrong- what happens to those we are trying to help?

So, now, that we see these assumptions are wrong, what now? If the excise tax does not increase wages, what other purpose does it serve. Certainly, not, as we have seen better health care services. 

c. The ideological assumptions are something I want to discuss now in greater detail as they provide us insight into how the middle class economically is being squeezed. 

The core ideological assumption that no one discusses is that all products and services are ultimately commodities. This underlying assumption is found here as well. That faced with the realities of cost, health care consumers will act rationally regarding health care services. 

Is this assumption correct? Are health care consumers rational?

The answer is decidedly complicated. I will simply say that the answer is probably no. This answer has profound consequences to the assumptions of the excise tax because it means the excise tax assumption is false, and, therefore, predicted outcomes are also false.

Let me start with an exchange I had in which one person responded with an extreme case that illustrates the problem in the form of analogy:

"When I was unconscious on the floor, next to a toilet full of bloody vomit just after surgery, should I have suggested to my husband that he ask the 911 operator to provide a cost-benefit analysis of different hospitals and ambulance services, to ensure they send only the most cost-effective ambulance to carry me to the most cost-effective hospital, instead of sending the closest ambulance to take me to the nearest hospital?"

LINK

The analogy is an extreme, and does not represent the core issue with the excise tax, but it illustrates a point about health care consumers: They are going to do whatever it takes to save their lives regardless of cost. Adding more cost is not going to change this equation, and if it does, we may end up with more deaths because of those who guess wrong.  This is the essential the oddly right wing libertarian flavor of the excise tax. To ask them to go up against a monopoly to rationally pick their health care services needs seems to be expecting the impossible. Who will be the honest broker in this bargaining?

The value of this example is that it illustrates a central issue with assuming rational behavior- that the patient has the expertise to determine what services to use or not use. What happens if the patient is not capable of rational decision making because of uneven information or a lack of expertise or bad faith behavior by monopoly insurance companies? It seems that the more likely assumption is that we are asking people to take a shot in the dark about whether they are over or under utilizing health care. 

One can go back and forth on this issue. It is not a topic that is new, but it is one that requires a lot more research:

LINK

We can attempt to model these issues in terms of predictable irrationality: LINK

Read also: LINK

But, understanding these issues at the moment is fairly out of the range of making the excise tax acceptable regarding really digging into the evidence of what consumers will do. To try to build policy on poorly understood assumptions in which we assume the best case scenario seems at best wishful thinking. Nor can new approaches with behavioral economics help us with this.  The problem here, however, is that proponents argue as if they are basing their views on facts rather than assumptions based on right wing ideas about rational actors using health care services too much rather than the much more messy and complicated reality. This is poor policy making for this reason alone. But, of course, there are other reasons it is poor policy making. 

d. As a corollary, the argument assumes we will "bend the cost curve" is also false. This depends on assuming monopolies will stop being monopolies and that consumers will not under or overestimate their need for health care services. 

Of course, what c) above means is also important regarding what we can expect of consumers regarding any overall systemic costs. If consumers are under and overestimating costs, who will we depend on address cost containment that will "bend the cost curve" for consumers? Again, this is about uncovering the often right wing assumptions buried within the conversation. 

Implicit in these discussions is that health care consumers will still require some sort of third party mediator to determine what services they require. The question, therefore, is who will make this decision since pushing this on individuals is likely to produce systemic fool's gold? 

We run into the same problem as before: What if the assumptions are wrong? Who then is on the hook for the incorrect assumptions?

The short answer is: Risk is shifted to the middle class as it has  been for decades. So, if we fail to "bend the cost" under these economic assumptions, consumers will be left paying more. That's the underlying cost explosion risk involved in the faulty assumptions of rational health care consumers. We leave them on the hook for costs set to increase from 12k per year now to 23k in 2020. 

e. Finally, the tax is regressive rather than progressive. Thus, the ideological reason for the tax is flawed.

The final assumption that needs to be addressed, or rather, spin in the example of this particular argument, is that there is something progressive about taxing middle class health care plans to supposedly help lower classes. 

The issues with this argument are many fold. The largest being the regressive nature of the tax on the middle class since it is not progressive according to ability to pay. In short, wealthy are not paying their higher share, and the middle class are taking on the burden in a way that is out of whack with the cost to the middle class. It simply targets the middle. This is not the theory behind progressive taxation.

The economic burden of the middle class right now is already enormous. Although much hated, Firedoglake covers both the excise tax and the burden of health care cost on the middle class. The later link actually underestimates cost when you factor in educational costs and savings for retirement. 

The middle class is presented in this scenario with a damned if you do and damned if you don't bargain: "Bend" the cost of health care by using less services, but in so doing facing the risk of underestimating need, which increases death; or, over estimating need, and, thus increase financial hardship due to the tax and face bankruptcy risk. There is nothing progressive about a tax that does not reflect the ability of a class to pay the tax. 

For all of these reasons, but especially because of the underlying assumptions, I am against the excise tax.