Excise Tax on Very High-Cost Health Plans Is a Sound Element of Health Reform — Center on Budget and Policy Priorities

By Paul N. Van de Water

An excise tax on very high-cost health plans, which the Senate Finance Committee included in its health reform bill, represents a sound way to help pay for health reform. The excise tax finances nearly a quarter of the costs of the Finance Committee bill over the first ten years ($201 billion out of $829 billion) and makes a major contribution to the deficit reduction that the bill would achieve in later decades. It would help to slow the rate of health care cost growth, without which health care reform is not likely to be sustainable over time.

Of particular note, the excise tax produces savings that rise over time at least as fast as the costs of providing health insurance to those now uninsured. Without such a tax, Congress will be hard-pressed to comply with the President's pledge — and Senate rules — that the bill not increase the deficit in future decades.
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