Influential Economists Say Tax On Cadillac Health Care Plans Must Remain In Health Care Bill

A number of high-profile economists are asking Senate Majority Leader Harry Reid not to change a number of key aspects of his health care legislation, including a controversial tax on insurance companies that sell luxurious insurance policies.

"Four elements of the legislation are critical: 1) deficit neutrality, 2) excise tax on high cost insurance plans, 3) independent Medicare commission, and 4) delivery system reforms," they write in a letter delivered to Reid today.

Here's what they say about the excise tax, specifically: "Like any tax, the excise tax will raise federal revenues, but it has additional advantages that are essential."

The excise tax will help curtail the growth of private health insurance premiums by creating incentives to limit the costs of plans to a tax-free amount. In addition, as employers and health plans redesign their benefits to reduce health care premiums, cash wages will increase. Analysis of the Senate Finance Committee's proposal suggests that the excise tax on high-cost insurance plans would increase workers' take-home pay by more than $300 billion over the next decade. This provision offers the most promising approach to reducing private-sector health care costs while also giving a much needed raise to the tens of millions of Americans who receive insurance through their employers.

The excise tax has always been popular among policy wonks, but has been criticized harshly by both labor leaders and industry officials alike. Recent reports indicate that Reid is planning to scale back the provision (i.e. raise the threshold so that it falls on only the most expensive plans out there) and replace the lost revenue with a payroll surtax on high income earners. Those specifics won't be known until Reid unveils his legislation, which he may do tomorrow.

You can read the entire letter here.