Would benefits tax really save money? Study suggests not

Supporters of the tax on high-premium health benefits said it would lower health costs.  Here's how it's supposed to work, they said: Employers will cut benefits to avoid the tax, meaning higher out-of-pocket costs for workers; to avoid paying those costs, the workers would cut out unnecessary doctor visits, saving costs for the system.

A new study in this week's New England Journal of Medicine adds more evidence that the theory of cost savings through higher out-of-pocket costs isn't true.

The study tracks Medicare health plans, such as HMOs, that increased the co-pay for doctor visits.  It compared records of more than 800,000 patients - some in health plans that raised co-pays, some in similar plans that kept co-pays level. Those facing higher co-pays did, in fact, make fewer doctor visits - but they ended up needing more hospital care, driving overall costs up.

By raising co-payments, the study estimated, health insurers collected an additional $5,950 in co-pays from each 100 patients, and fewer doctor visits saved another $1,200 for the insurance company, for a total apparent saving of $7,150.  But those 100 patients, on average, generated an extra two hospital admissions and 13 days of hospital care, for an added cost of $24,000 - more than three times as much as was "saved."

The results are consistent with other research showing that higher co-payments can lead to more hospitalizations when patients defer needed preventive care.

Why does this matter? As Congress considers how to move forward with health reform, the Senate's health reform bill would tax high-premium benefits, the House's bill wouldn't.  Some are suggesting the House should pass the Senate's bill.  CWA thinks that's the wrong way to go because the benefits tax is misguided policy.