How will a tax on health insurance benefits affect people's behavior?

I was listening to the radio this morning about this proposal to fund health care reform by taxing health insurance benefits. They are currently untaxed. I know that over the years, employers and employees have conspired to give more compensation in the form of health benefits, since those aren’t taxed, while cash income is. I guess public policy was designed to encourage employers to provide health insurance, so that’s why it got the tax break.

If you eliminate that tax break, then employers and employees will no longer have an incentive to push income into health insurance. So employees will prefer to take more cash income, and they won’t give as much concern about health insurance. If this is the case, than the policy would lead to more uninsurance or under-insurance, rather than expanding coverage.

It might shift coverage around—flip it over, so poor people have more insurance than rich people. Insurance companies might be against it. Hell, they should be against it. If this were combined with a public plan, I think there would be a huge rush for the door to get into that plan. It would be the cheapest way of providing the most benefits. Without a public plan, it’ll just lead to higher numbers of uninsured, not lower.

What do you think?