podcast on Taxing Cadillac Plans

Taxing Health Care: Planet Money (NPR economics show) podcast

On Planet Money, they interviewed an economist at MIT about why the Cadillac tax on expensive insurance plans is a good idea. During the podcast, and this was pretty awesome, the engineer in the studio started getting all upset. So, they had the economsit debate the sound engineer.

We do not have enough debate between highly-trained professional and absolute amateur with good common sense. I say that not becasue I side with tthe engineer (I don't), but because the economist is so hamstringed in his explanation. For example, he has trouble, because he assumes that cost savings from lower health insurance premiums from the employer will be passed on to the worker. This really will happen, after a while, in a free labor market, because even if the employers' profits rise in the short-term, after a while the workers will be able to bargain for higher wages or else other employers will move in (drawn by the higher profits) and bid up the workers' wages.

The economist assumes this mechanism, this "if...then..." chain of events, so deeply that he doesn't even notice he's making this chain of logic. But the worker just hears it as a "today/tomorrow" story between one worker and one employee. The possibility of currently non-existent, but potential employers moving in, and the long-term effects, don't occur to the engineer; they are outside the realm of what an individual can observe; they only show up in the big picture.

The biggest problem the worker has, though, is understanding the idea of someone being "at the margin" over whether to get a health treatment or not. He says, "I don't see why someone would go to the doctor, just because it's cheap." The margin is a hard-to-understand, suspicious concept, because, by definition, only a handful of people will be anywhere near the margin in a very large market. Almost everyone is very far on one side of the "buy/don't buy" curve.

This really changed the way I'm thinking about my documentary. I realize that, I, too, assume the margin. And I think I kind of address the margin, in the section with Anne having to return a video vs. studying, but I think the margin needs to be treated in its own section, which actually makes the point that I've just made: almost everyone is well on one side of the margin. Add to this the special feature of the market for roadspace that only like 10% of people at the margin have to quit driving for substantial gains, and I think I've got a convincing argument.