Tuesday, December 29, 2009

Bob Herbert takes a closer look at that so-called Cadillac tax on supposed fat cats' health insurance policies

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UPDATE: WaPo's Ezra Klein responds


"The tax on health benefits is being sold to the public dishonestly as something that will affect only the rich, and it makes a mockery of President Obama’s repeated pledge that if you like the health coverage you have now, you can keep it."
-- Bob Herbert, in his NYT column today,

by Ken

The subject of the "Cadillac tax" on supposedly exclusive-to-the-super-execs health care insurance plans has been questioned frequently. I have a bad feeling that my own plan, which I consider "adequate," and is my one real employment "perk," and maybe the thing that most ties me to a job I'm far from crazy about, either qualifies or is going to, and believe me, I'm not any kind of fat cat.

It would have been easier for me to know back in the days when, at each year's benefits meeting, we were told both the old and new figures for the portion coming out of our paychecks as well as the percentages of the total costs our contributions represented. In recent years, curiously, we've been told only our new contribution amount, meaning we have to dig out an old pay stub just to compare it with our previous year's contribution. I'm guessing we're paying a significantly higher percentage of the total cost than we used to, but considering the skyrocketing total cost, I worry that the amount of the company's contribution is going to put us in that "Cadillac" class.

Today Bob Herbert devotes a whole column to the subject, and it's not exactly reassuring.

OP-ED COLUMNIST

A Less Than Honest Policy

by BOB HERBERT

There is a middle-class tax time bomb ticking in the Senate's version of President Obama's effort to reform health care.

The bill that passed the Senate with such fanfare on Christmas Eve would impose a confiscatory 40 percent excise tax on so-called Cadillac health plans, which are popularly viewed as over-the-top plans held only by the very wealthy. In fact, it's a tax that in a few years will hammer millions of middle-class policyholders, forcing them to scale back their access to medical care.

Which is exactly what the tax is designed to do.

The tax would kick in on plans exceeding $23,000 annually for family coverage and $8,500 for individuals, starting in 2013. In the first year it would affect relatively few people in the middle class. But because of the steadily rising costs of health care in the U.S., more and more plans would reach the taxation threshold each year.

Within three years of its implementation, according to the Congressional Budget Office, the tax would apply to nearly 20 percent of all workers with employer-provided health coverage in the country, affecting some 31 million people. Within six years, according to Congress's Joint Committee on Taxation, the tax would reach a fifth of all households earning between $50,000 and $75,000 annually. Those families can hardly be considered very wealthy.

Proponents say the tax will raise nearly $150 billion over 10 years, but there's a catch. It's not expected to raise this money directly. The dirty little secret behind this onerous tax is that no one expects very many people to pay it. The idea is that rather than fork over 40 percent in taxes on the amount by which policies exceed the threshold, employers (and individuals who purchase health insurance on their own) will have little choice but to ratchet down the quality of their health plans.

These lower-value plans would have higher out-of-pocket costs, thus increasing the very things that are so maddening to so many policyholders right now: higher and higher co-payments, soaring deductibles and so forth. Some of the benefits of higher-end policies can be expected in many cases to go by the boards: dental and vision care, for example, and expensive mental health coverage.

Proponents say this is a terrific way to hold down health care costs. If policyholders have to pay more out of their own pockets, they will be more careful -- that is to say, more reluctant -- to access health services. On the other hand, people with very serious illnesses will be saddled with much higher out-of-pocket costs. And a reluctance to seek treatment for something that might seem relatively minor at first could well have terrible (and terribly expensive) consequences in the long run.

If even the plan's proponents do not expect policyholders to pay the tax, how will it raise $150 billion in a decade? Great question.

We all remember learning in school about the suspension of disbelief. This part of the Senate's health benefits taxation scheme requires a monumental suspension of disbelief. According to the Joint Committee on Taxation, less than 18 percent of the revenue will come from the tax itself. The rest of the $150 billion, more than 82 percent of it, will come from the income taxes paid by workers who have been given pay raises by employers who will have voluntarily handed over the money they saved by offering their employees less valuable health insurance plans.

Can you believe it?

I asked Richard Trumka, president of the A.F.L.-C.I.O., about this. (Labor unions are outraged at the very thought of a health benefits tax.) I had to wait for him to stop laughing to get his answer. “If you believe that,” he said, “I have some oceanfront property in southwestern Pennsylvania that I will sell you at a great price.”

A survey of business executives by Mercer, a human resources consulting firm, found that only 16 percent of respondents said they would convert the savings from a reduction in health benefits into higher wages for employees. Yet proponents of the tax are holding steadfast to the belief that nearly all would do so.

“In the real world, companies cut costs and they pocket the money,” said Larry Cohen, president of the Communications Workers of America and a leader of the opposition to the tax. “Executives tell the shareholders: ‘Hey, higher profits without any revenue growth. Great!' ”

The tax on health benefits is being sold to the public dishonestly as something that will affect only the rich, and it makes a mockery of President Obama's repeated pledge that if you like the health coverage you have now, you can keep it.

Those who believe this is a good idea should at least have the courage to be straight about it with the American people.


UPDATE: THE WAPO'S EZRA KLEIN
RESPONDS TO BOB HERBERT'S COLUMN


The Washington Post's Ezra Klein has posted a response to Bob Herbert's column. Here are some excerpts:
Bob Herbert's column today isn't so much a good argument against the excise tax as it is an example of why cost control will be virtually impossible, and thus national bankruptcy -- a real decrease in wages -- is a near-certainty.

Herbert argues that the excise tax will push people toward less expensive insurance premiums and begin to tax some portion of some health-care plans. Both are true. I'd say this is a good thing. He says it's a bad one. Distilled to its essentials, Herbert is arguing that, even at the high end, more expensive insurance policies are better insurance policies, and that the government should be subsidizing their purchase. Does that sound like a world in which we're going to control costs? . . .

[T]he people who receive that subsidy like receiving it. But the unemployed don't get any of that money, nor do people whose employers don't offer them insurance. The tax preference is huge, regressive, and encourages more spending on health-care insurance. And beyond all that, it separates workers from the cost of their health-care insurance, which is one of the main drivers of our cost problems. . . .

There is no way to sharply cut costs in a fifth of the economy without there being losers. And those losers won't all be Goldman Sachs executives. They won't all be providers (indeed, if you cut provider costs too much, they stop accepting patients, and then the patients lose). There's really no way around it. Even single-payer would bring a lot of losers with it, taking people in Cadillac plans and downgrading them to the same Camry as everyone else. . . .

[A]t some point, we need to start trying cost control. If the policy doesn't work, if it hits people too hard and falls on the wrong plans, well, little is easier to repair than an unpopular tax. But little is harder to do in the first place than cost control. Those who would kill this attempt should think really hard about what their counter-policy is, and who will lose from that policy, and why that is preferable, and whether it can actually pass, and where we're left if it doesn't, and who loses from that. Cost control has losers, unfortunately. Herbert's column is proof of that. But not controlling costs has the most losers of all.

I wish I were equipped to evaluate this, but as with so much of the health care debate, we're stuck choosing mostly blindly among our "experts." One thing I do know is that when E.K. suggests, "If the policy doesn't work, if it hits people too hard and falls on the wrong plans, well, little is easier to repair than an unpopular tax," I assume he's kidding. Because I'm sure he knows as well as anybody that once my health care benefits are dismantled, I'm never getting them back.
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4 Comments:

At 5:22 PM, Blogger Darrell B. Nelson said...

What Klien seems to be talking about is that the real choice is the top health insurance plans getting slowly worse over the next decade if we act, or total demand destruction of the healthcare system if we don't. I wrote about healthcare costs could go through demand destruction here:http://www.associatedcontent.com/article/1995364/healthcare_and_demand_destruction.html?cat=3
Simply put if nothing is done to curb costs in 2014 it will make no economic sense for half the country people making under $50,000 a year to buy health insurance. By 2020 it will make no economic sense for 95% of the country to buy health insurance. A system can't survive if only 5% are paying for the services.

 
At 6:26 AM, Anonymous Lauren O. said...

There are only two ways to control costs in health care and both of them involve cutting out insurance companies. In the absence of a single-payer system, a more direct relationship between health providers and health consumers (read: old-fashioned market competition) is your best cost-cutting solution. (I'm ready to eject my insurance company and go shopping for some kind of generalized catastrophe insurance - seems like every trip to the doc turns into a clerical mess.)

If we can't eliminate the middleman, why doesn't the reform bill just tax the middleman at a more appropriate rate? No individual likes to be singled out a punitive tax; this idea is especially stupid, politically, because it will probably eventually impinge on union benefit packages. Repeat: there's been a relentless windfall streaming down on big Pharma and Insurance companies since, like, forever - instead of penalizing individuals, why aren't we dipping into that rich pool of financial excess?

 
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