The new excise tax on employer-provided health insurance will result in most people getting worse health insurance from their employer, insurance that covers less. That is just not my conclusion, it is the conclusion of the CMS.

In reaction to the tax, many employers would reduce the scope of their health benefits. The resulting reductions in covered services and/or increases in employee cost-sharing requirements would induce workers to use fewer services. Because plan benefit values would generally increase faster than the threshold amounts for defining high-cost plans (which are indexed by the CPI plus 1 percent), over time additional plans would become subject to the excise tax, prompting those employers to scale back coverage.

To translate, your employer will reduce what your current insurance plan and put in place high co-pays and deductibles. The result is that many people with employer-provided health insurance will see their insurance get much worse. For younger, healthier employees, possibly getting less comprehensive insurance but maybe higher wages (I think it is very doubtful that there is a pure dollar for dollar passthrough), this might be a decent deal. For older, less healthy employees this is a very bad deal. They will be forced to pay much more out-of-pocket for their health care.

So, why would Obama push so hard to make people’s current health insurance worse?

The tax would be 40 pecent of the excess benefit value above these thresholds. We estimate that, in aggregate, affected employers would reduce their benefit packages in such a way as to eliminate about three-quarters of the current excess benefit value. The resulting higher cost-sharing requirements for employees would have an initial, significant impact on the overall level of health expenditures. Moreover, because health care costs would generally increase faster than the CPI plus 1 percent, we anticipate additional, incremental benefit coverage reductions in future years to prevent an increase in the share of employer coverage subject to the excise tax. These further adjustments would contribute to a small reduction in the growth in health care expenditures for affected employees through at least 2019.16 In 2019, these impacts would reduce total NHE by an estimated 0.3 percent.

That’s it, or at least Obama’s lame excuse for wanting it. This excise tax, which would reduce the quality of millions of Americans’ health insurance coverage, will technically “bend the cost curve” by just barely 0.3% in 2019. All that for a measly 0.3% reduction in national health expenditures. To give you a comparison, CBO projects that Dorgan’s drug re-importation would reduce spending on prescription drugs roughly $100 billion over the next decade (I think the savings could easily end up 4-5 times that amount). A $10 billion reduction in prescription drug spending compared to the total NHE spending last year, which was roughly $2.4 trillion in 2008, would be a 0.4% reduction in NHE.

Dorgan’s bipartisan drug re-importation amendment would reduce NHE by basically as much as this excise tax. Except Dorgan’s amendment would reduce American’s out-of-pocket spending on health care, and not increase it like the excise tax. If this excise tax is the core of the plan to “bend the cost curve,” it is a failure. If the government took the simple and small step of using its size to negotiate better drug prices for all Americans (like every other industrialized nation), it would do dramatically more to reduce NHE than this excise tax that will reduce the quality of insurance for millions of Americans.

Jon Walker

Jon Walker

Jonathan Walker grew up in New Jersey. He graduated from Wesleyan University in 2006. He is an expert on politics, health care and drug policy. He is also the author of After Legalization and Cobalt Slave, and a Futurist writer at