The Economist Forgets Economics

I may have just read the stupidest sentence to ever make it to the print edition of The Economist. In their leader on Barack Obama's health care speech they list as one of the good ideas "a tax on insurance companies that offer 'Cadillac' plans to richer individuals." Why is this such a good idea?

Since this will inevitably be passed on to consumers, it is a useful step towards making individuals aware of the cost of their coverage.

I suspect that the demand for health insurance, even "cadillac" versions is relatively inelastic which means any tax will most likely be passed on mostly to consumers. It is also true that this will make individuals more "aware of the cost of their coverage" and, as such, some will change their insurance plans.

But if you want to reduce the insulation between health care costs and consumers why not just remove the tax credit. This Cadillac tax will make some individuals more aware of the cost of insurance by making it more expensive. How does that help?

Is health care consumption by the rich really one of the driving forces behind the high cost of health care. How many basic plans are there relative to these high-end plans? How does this ensure that the majority of health care consumers will realize the true cost of coverage?

Lastly, I thought the main problem was high health care costs. If this tax is added on to the monthly premium that a consumer pays, it isn't likely that they will alter the amount of health care they consume per month since the premium is a sunk cost.