Mother Jones: Obama Still Insisting on Excise Tax on Middle Class Health Insurance:

The Cadillac Crunch

by David Corn

February 23 2010

After more than a year of partisan and policy combat, the epic battle for health care reform may come down to an internal Democrat party tussle: whether or not House Democrats yield to President Barack Obama and accept a tax on high-end insurance plans.

After the Democrats in the House and the Senate passed different versions of health care legislation, several critical matters had to be worked out, including how to finance the reform. The House bill called for a surtax on the wealthiest Americans, The Senate measure included a tax on so-called Cadillac plans. This led to a contentious intra-party squabble. A few weeks ago, House Speaker Nancy Pelosi told several columnists (including me) that this excise tax has "no support" among House Democrats and that "the easiest thing is just to get rid of the whole excise tax."

Yet on Monday, the president released—finally—his own health care proposal, which essentially is based on the Senate measure, with a few changes. And on the excise tax, he sided with the Senate. But he wants it tweaked so that it kicks in 2018, not 2013, and hits fewer plans. His proposal calls for raising the threshold for this tax from $23,000 in premiums for a family to $27,500.

Obama's reforms address some of the complaints from House Dems—but not their fundamental gripe: the tax is bad policy and bad politics. Rep. Jerrold Nadler, (D-NY), who has led the charge against the excise tax, contends that a tax imposed on high-cost plans would likely not cause insurers to become more efficient and reduce costs (the supposed intent) but to cut back on benefits—and employees will end up with higher deductibles and co-payments as a result.

Such a development, Nadler adds, will "violate Obama's promise that if you like your plan, you can keep it." Nadler also fears an excise tax is "political poison" because it will hit blue-collar workers (unionized or not) who have managed to obtain high-end health plans. "We lost the Reagan Democrats in the 1970s and 1980s," he says, "because they came to believe that liberals wanted to benefit other people—the blacks, the Latinos—at their expense. We've just gotten them back. And now we're saying to working people, we have to insure other people at your expense. This will destroy the Democratic Party and progressive politics for 30 years."


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http://motherjones.com/politics/2010/02/cadillac-tax-health-care-reform

Robert Reich on the excise tax....

The House wants a 5.4 percent surtax on couples earning at least $1 million in annual income. The Senate wants a 40 percent excise tax on employer-provided “Cadillac plans.” The Senate will win on this unless the public discovers that a large portion of the so-called Cadillacs are really middle-class Chevys, expensive not because they deliver more benefits but because they have higher costs.

The dirty little secret under the hood is that less than 4 percent of the variation in the cost of current health-care plans has to do with how many benefits they provide. Most plans that cost more do so because (1) a particular set of employees is older and tends to get sicker than the average set of employees (that’s true for a lot of old rust-belt firms), (2) the plan is offered by a small business that lacks bargaining clout with insurers (small businesses pay, on average, 16 percent more for the health insurance they provide, per capita), (3) the work that employees do subjects them to greater risk of medical problems (health-care workers, for example), or (4) most employees are women (who tend to have higher health-care costs than men because women are the ones who bear children). Plans could also cost more but deliver average benefits because (5) insurers in the area don’t face much competition (one main reason for the public option).

So by taxing so-called Cadillac plans, the Senate bill would actually end up taxing the Chevy plans of a large portion of the middle class. And as time goes by, a still larger portion, since the Senate plan is geared to the overall rate of inflation rather than to the (much higher) rate of increases in health-care costs.

Defenders of the Senate plan say not to worry. Employers who bear the tax and therefore have an incentive to cut back on health care for their employees will make it up to employees in higher wages. But anyone taking even a passing glance at today's labor market knows this is wishful thinking. Employers have no incentive to raise wages when almost everyone is worried about keeping their jobs. (Besides, a dollar's worth of tax-free health benefit is worth more than a taxable dollar of wages.)

In any event, I thought a major purpose of health-care reform was to get more care to more people, not to cut it back. Even employees who get extra dollars of wages to make up for the cutbacks won't necessarily plow those wages back into health care.

Some say the Senate's excise tax is the only way to control long-term health care costs. Baloney. If a portion of the middle class loses their health care, they won't get the preventive care that's so crucial to containing long-term costs. If Congress wanted to do more cost containment it would allow Medicare and Medicaid to use their huge bargaining power to get lower costs from pharmaceutical makers and medical suppliers. And it would have a public option to compete with private insurers.

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But why even take these chances when the House bill simply and cleanly goes after the top 1 percent? It's not as if couples earning over a million can't afford to pay the tax. When I last looked, the top 1 percent was taking home a record 23 percent of total income. If anything, the Great Recession is widening the gap. It's bonus time on Wall Street again. But the middle class is taking a beating.

http://www.commondreams.org/view/2010/01/13-2