Are Taxes "Passed On"?
By David Henderson
AHIP CLAIM: Fees on health insurance providers, pharmaceutical manufactures and device makers will be passed through to individuals and families.
REALITY: This claim does not withstand scrutiny for at least three reasons:
First, the idea that every dollar of assessment will be passed on to consumers is not credible – especially given the policy design. The policy assesses a flat amount per year, paid by companies based on their market share, beginning in 2010. The AHIP assumption that they will accumulate the amount of these fees and pass them along in a lump sum to enrollees later simply does not make sense.
Unfortunately, we can’t say whether the bloggers have stated AHIP’s claim accurately because the only thing we have access to is not the Price Waterhouse study but, rather, a 26-page report that gives their conclusions with no actual analysis. I doubt that AHIP claimed that “every dollar of assessment will be passed on to consumers.” If AHIP did say that, it would mean that Price Waterhouse assumed that insurance companies’ marginal cost curves were horizontal (actually, that’s somewhat plausible) and that the insurance companies have zero market power (that’s less plausible). But whatever is true about costs and market power, any per unit tax is passed on at least somewhat to consumers unless the supply curve is vertical or the demand curve is horizontal. Who believes either of those?
Also, I doubt that AHIP said, as the White House bloggers said, that “they will accumulate the amount of these fees and pass them along in a lump sum to enrollees later.” I don’t even know what passing “them along in a lump sum” means. A lump-sum tax will not be passed on if it does not force out any marginal firms. But the White House’s own statement above says that it would be an incremental tax, not a lump-sum tax. In the White House’s own words, “The policy assesses a flat amount per year, paid by companies based on their market share, beginning in 2010.” If the tax is based on market share, the way to reduce the tax is to shrink. That makes it an incremental tax.
H/T for White House blog to Charley Hooper.