Thursday, September 17, 2009

Money saving?

Much has been made in the past 48 hours about the Baucus plan, which has finally emerged. Not surprisingly, even after months of negotiating with Republicans, none of them support it. And multiple high-profile Democrats have attacked various aspects of it as well. A real highlight of the bill is that it is quite fiscally attractive, the CBO scoring it as deficit reducing over a 10 and 20 year window.

But what I don't understand is the mechanism by which it achieves some of these cost-savings, namely an (increasing) tax on generous insurance policies. I have no idea how the CBO scores such things, but wouldn't a higher and higher tax eventually produce diminishing returns, as in, employers and their employees will switch to cheaper plans?