Updated: AHIP Claim on Benefits Tax "Implausible"

by Jonathan Cohn | October 12, 2009

One of the most devastating claims in the insurance industry's PriceWaterhouseCoopers report is that, by 2016, even some of the least generous plans offered through insurance exchanges would be subject to the new excise tax on high-value benefits. In other words, within a few years, the tax won't apply only to "Cadillac plans." It will apply to Chevys and maybe even some Kias, too.

MIT economist Jonathan Gruber is one of the most well-respected experts in this field--somebody whose modeling has wide credibility, even among Republicans.  He looked at the PriceWaterhouseCoopers report and tells me that he finds that set of claims "implausible."

The particulars, for those who want to get into the weeds, have to do with PriceWaterhouseCoopers assumptions about regional variation. To arrive at their figures, they assume that average premiums in some parts of the country would exceed the national average by about twice the national average.

But the best available data we have, from government surveys and the Kaiser Family Foundation, suggest that average premiums exceed the national average by, at most, around 20 percent. The idea that the variation would somehow explode up to 100 percent, during a period in which reform will likely reduce national variation, is pretty hard to swallow.

To be crystal clear about this--and to reiterate what I said in my original item--I think the report makes a few good points. The weakening of the individual mandate and scaling back of cost control in the bills moving through Congress ought to be sources of genuine concern for everybody, not just the insurance industry. A poorly designed reform really could raise premiums. But the more I learn about this report, the more I think it blows these concerns out of proportion and makes some really crazy assumptions.

Update: I added some more explanation for why Gruber thinks the claims are fanciful, as well as adding the caveat at the end.

Source URL: http://www.newrepublic.com//blog/expert-ahip-claim-benefits-tax-implausible