The Senate’s controversial “Cadillac Tax” on expensive health insurance plans was supposed to raise $149 billion to help fund reform. But now, we’re told it’s been “scaled back.” Some use the verb “gutted”—though that is probably a tad strong. Still, a number of changes have been made:
- Union employees will be exempt for the tax on expensive insurance plans until 2018, five years after the legislation takes effect
- Government employees will also be exempt until 2018
- The threshold defining “expensive” plans has been lifted from $8,500 to $9,000 for individual plans and from $23,000 to $24,000 for family plans.
- The threshold will rise further for plans where premiums are higher because the work force is older or includes more women
- Adjustments will also be made to spare plans in 17 states with particularly high health costs.
- The value of dental and vision benefits won’t count toward the thresholds
Reportedly, the changes mean that the tax will raise about $90 billion over 10 years, down from $149 billion. But my guess is that, after you tally up all of the adjustments, the bill will raise far less.
Keep in mind, as I reported in yesterday's post, the original figure was based on the assumption that roughly $120 billion of the $149 billion would come from individuals paying higher income taxes, Medicare taxes and Social Security taxes. Why would their taxes go up? The bill’s architects make two assumptions: First, they predict that in order to avoid the Cadillac tax, employers will ratchet back to cheaper plans. This is no doubt true. Secondly, they fantasize that employers will then pass on the savings to employees in the form of higher wages. To say that this is unlikely would be an understatement.
As I explained in the earlier post, the history of wages and benefits over the past 25 years shows that employers hand out raises only if they must, in order to attract employees in a very tight labor market.
Legislators will now have to scramble to find a way to replace the funding that the Cadillac Tax was supposed to provide. Reportedly, negotiators are “considering increasing the financial hit on drug makers, nursing homes and medical-device makers.”
Here, I would note many large drug-makers have expanded into medical devices, and now enjoy 16 percent profit margins. Meanwhile, drug-makers and medical-device manufacturers rake in roughly 16 percent of the $2.6 trillion that we, as a nation, spend on health care. They could afford to make a larger contribution to reform.
But while the tax may raise far less than expected, a few years down the road, it still could have an unhealthy impact on many middle-class Americans. Today, very few employees are covered by a family plan that costs $24,000, but keep in mind that over the past ten years, the amount that private insurers pay out to doctors, hospitals and patients has been rising by an average of eight percent a year. Each year, health care providers do more, patients undergo more tests and treatments, and manufacturers charge more for every pill and every piece of high tech equipment.
If health care costs continue to spiral, premiums will rise apace. Meanwhile, the threshold defining expensive plans will climb slowly—it will be indexed to the consumer price index plus one percent, far below the average annual rate of health care inflation. As a result, premiums will quickly begin to catch up with the thresholds.
Mercer, the benefits consulting firm based in New York, predicts that by 2016—just three years after reform kicks in—the tax could affect 24 percent of the nation’s employees. (This number may be high; no one can predict how many plans will be exempted after adjustments for older workers, women and high-cost states).
But those employees who are affected will almost certainly face higher out-of-pocket payments. Here’s how the tax trickles down to employees:
Under the proposal, insurers will be required to pay a 40% tax on high-cost plans. They will then pass that tax on to employers who continue to choose these plans in the form of even-higher premiums. To avoid that added expense, most employers will probably switch to less expensive plans. Under reform, all plans will be required to offer a fairly rich package of “essential benefits,” so the only way to find a cheaper plan will be to look for one with higher co-pays and deductibles.
Thus, the burden will shift to employees. The tax’s supporters argue that this will help rein in health-care inflation. Because they will have more “skin in the game”, employees will become more prudent in their use of health care, going to the doctor less frequently, and avoiding unnecessary tests and treatments.
But, as I noted yesterday, research shows that when patients face high co-pays and deductibles, they are just as likely to skip needed care as they are to avoid overtreatment. And, when they put off necessary care, at some point down the road, they become sicker, and many even land in the hospital.
Recent experience confirms the research. As employers who can no longer afford sky-high premiums shift costs to employees, co-pays and deductibles have climbed. Yet health care spending continues to spiral as Americans undergo more procedures, see more specialists and pop more pills.
If “skin in the game” was going to control spending, one would think that it would already have begun to “bend the curve” of healthcare inflation.
I would also point out that in developed countries that have done a much better job of holding down health care costs, their citizens often receiving “first dollar coverage, ” paying nothing when they receive care. Their governments don’t try to force patients to ration themselves; they regulate prices and put caps on volume. And their hospitals and doctors are more likely to follow evidence-based guidelines to lift the quality of care while lowering costs. Recently, I’ve written about how Norway has all but eliminated hospital infections, while France’s hospitals have adopted checklists that we know greatly reduce costly medical errors.
Finally, I can’t help but recall the House’s alternative to a “Cadillac tax”: raise income taxes on Americans earning more than $500,000. Even with the hike, the richest 1% would be paying no more than they did in the middle of the 1990s. It was such a simple plan. . .
Now that the ‘Cadillac Tax’ is a ‘Buick Tax’, where will the extra money come from? This give back to the unions was all part of the plan. Despite what the president has promised, this process has been as transparent as concrete. http://www.MDWhistleblower.blogspot.com
Michael–
Thanks for the comment.
I’m afraid that when Obama promised that this process would be transparent, that pledge reflected the fact that he hadn’t been in the Senate very long.
The only way to ever get anything done in the Senate seems to inovlve a fair amount of negotiating behind closed doors.
People just don’t want to go on the record as to what they might be willing to offer. That part I understand. When negotiating you’re playing poker . .
I don’t even think that the “give back” to the unions was part of the plan.. . Much of what has happened over the past few months has been unscripted, and I would guess involved some real surpriss for the White House (particularly Joe Liberman standing up, saying “I’m not going to let this happen,”–and succeeding.) If they knew he would do that, they would have stripped him of his power long ago.
I do think the White House wanted the public option. Until Liberman came forward, it looked like they might well get it.
But they weren’t willing to risk losing the whole bill over the public option . .
Also, I think that many commentators are giving the White House too much credit for knowing what would happen ahead of time and then playing the process in a Machiavellian way. . .
They couldn’t predict who would play hardball, and to what degree.
Some say that wasted a lot of time with Snowe–that she was never going to offer a compromise that liberals could accept.
As to where will they get the money now . . .
I suspect that they will wring more money out of Pharma/device makers. They may raise the Medicare payroll tax further–though I think that would be a major mistake.
Ultimately, I think we’ll see another income tax hike for the top 1% or 0.5% —probably not as part of this bill, but sometime in the next year or two.
For now, I think most people will play along with the fiction that the Cadillac tax will raise $90 billion—as long as the Congresional Budget Office doesn’t blow thir cover when it estimates how much the new Cadillac Tax will bring in.
Finally, I continue to believe that Medicare will get tough cutting waste, refusing to pay for errors and inefficiency etc. Medicare has no choice–otherwise, it begins to go broke.
And I think that as long as Medicare provides political cover, many private insurers will follow Medicare’s cuts . .
We have 3 years or 4 years before reform rolls out. Much can happen during that time.
We have not seen such cronyism or secret agreements in legislation in the United States since the industrial revolution. This administration promised bipartisanship and transparency. On health reform, we have seen neither. Now the Congress will only have one alternative, which is to raise medicare taxes. When that hits the street, this bill is dead on arrival as not even the Democrats will be able to sustain the incredible political heat they are will be under. Simply look to Massachusets to see how ticked off the country is over the attempted takeover of 16% of our US economy.
Hoyt–
I agree that raising Medicare payroll taxes will not play well politically. I think it’s a bad idea.
In terms of cronyism, however, take a look at passage of the Medicare Modernization Act, corporate welfare for drug-makers and insurers.
After passage, a Congressional ethics committee concluded that one legislator who voted for the plan (a crucial vote) was bribed by fellow legislators. . .
As for bipartisanship, the Republicans just didn’t offer any significant ideas that would help us to provide high quality, sustainable health care for everyone.
For most Ameircans, that was the goal of reform.
I’m as huge a critic of Obama as anyone, and he did promise “transparency”, but you simply cannot accomplish anything like this without secret negotiations. That has been true since the foundation of the world.
And he didn’t lie. He promised said transparency because he simply had no clue what he was talking about, having had less management experience than, say, Sarah Palin.
Tim–
I agree.
I don’t think that this is a president who looks into the camera and knowingly lies to the American people.
I do think that he is relatively young, and going in, he overestimated his ability to create bipartisan consensus if he just made a rational, intelligent argument.
Because we have had so many presidents who lied to us over the last couple of decades, people have forgotten that not all politicians lie.
Jimmy Carter, Eisenhower are just two names that come to mind.
More likely however, you don’t think it is a lie, because he’s from your political side of the isle. You can only get so far blaming his statements as insipid. He’s a big boy. He made those statements all by himself, 8 times, on camera, to be exact. He is like most politicians, he says what he needs to get elected. The individual mandate vs. Hillary is another example. Central talking points of one of the most calculating campaigns of recent history can’t be dismissed as callow. The funniest thing is you seem to be blaming Bush for failed promises that came out of your candidate’s own mouth.
Jenga–
I’m not a Democrat, so I don’t have a side of the aisle.
And, back during the primary, Obama’s health care adviser, David Cutler, made it clear to me that, when push came ot shove, Obama would back a mandate.
I published this back then.
Those who thought that anyone could insist that insurers stop discrimianting against sick patinets without a mandate were simply foolish.
And, btw, during the primary, I backed Clinton, not Obama.
I never idaelized him, as some of his supporters did.
But when compared to Bush Obama is vastly more intelligent, and there is no proof that he hs ever lied to the country–certainly not about something as important as taking the country into a war that would proove to be Vietnam redux.
The whole thing is getting ridiculous. How about simply an exemption for Democrats and a tax on Republicans.
When did this become about taxes?? Isn’t this about reducing the cost of healthcare, getting the money out of medicine?
How sad, how very sad.
The Obama administration must be holding its breath while watching the Mass election taking place tomorrow. Who would have thought that a Mass senate seat would be in jeopardy of going Repub, never mind the seat held by Ted Kennedy in a healthcare reform critical position!! Even if the Dems win by a hair, what does this say about the our ability to govern and be governed when such a critical social area just cannot be dealt with smoothly no matter how obvious the current inadequacies?????
The “Cadillac” controversy seems like a political move to me. Doesn’t really make a dent in the cost of health care, so for me it seems like a non-issue.
At this moment, at 9:30 PM,, Tuesday, January 19, it appears that the cadillac plan is moribund, if not dead. Scott Brown has defeated Martha Coakley, leaving Senate Democrats one vote shy of the 60 needed to avert filibusters.
The best hope now probably resides in a move for the House to pass the Senate bill, which can then go directly to the President for signature without another Senate vote. For this to happen, the House Democrats would need assurances that the measure would later be amended to alleviate their concerns about the Senate version.
Paramount among these would be the cadillac tax plan. The House prefers an income tax surcharge on wealthy Americans, and it is likely most of the public would prefer this as well.
Ironically, another preference shared by the House and the public is the public option that was sacrificed to gain 60 Senate votes. Public polling indicates that the current reform package is unpopular, but the public option enjoys widespread public approval in the 60-70 percent range.
If House and Senate can agree to an arrangement that favors the House tax plan (with at most a minimal element of the Senate version), along with a restored public option, these measures could be approved in the Senate via the reconciliation mechanism available for budget-related provisions. In these circumstances, the Democrats could get a “twofer” – resuscitating both the public option and public support. The public could enjoy a better deal even than the one they were poised to receive before the Massachusetts election.
For this arrangement to succeed will require better coordination and less deal-making with interest groups than we have seen recently, but given the alternative, it may be an opportunity that reform proponents can’t afford to forfeit.
Maybe now the administration can see the need to throw the big business concerns under the bus and do something to address the real problem, money driven medicine.
Step one would be to start prosecuting those who have put money over medicine.
It is perhaps the only way left to get the populist support needed to get reelected.
Ed, NG , Fred, Ed (2nd comment)
Ed (Jan 17 comment) Yes, it is sad, very sad.
NG– I agree that it has become extremely difficult for anyoone to govenrn well. It is not just that special interests (lobbyists) have too much power.
The fact is that one person–be it Joe Lieberman or a newly elected senator from Ct. can say “I’m not going to let this happen”– or “I a going to send the Democrats back to the drawing board.”
This is not what representative Democracy is supposed to be about.
But in this highly polarized climate, one vote can have huge power.
And the conservatives have done a very good job of finding that one vote (Lieberman, now our new Senator from Ct.) and using it to maximum advantage.
Fred–
Unfortunately, at this point, it looks as if the will of the majority of the electorate is not going to determine what happens.
Instead the voters of one state –Mass– will cause Congress to wait until this new Senator is ssated and then we will see what happens.
I don’t think the voters in Mass. were even trying to express their views about health care reform.
They were expessing their feelings about the economy (jobs) and the fact that Democrats hanve’t been able to turn the economy around in one year. (I don’t think that would have been possible for Democats to do tha, but at the moment, that doesn’t matter.
Most people don’t realize that the president just doesn’t have that much power over the economy. It’s an enormous ship, very difficult to turn, and now it’s a ship traveling in global waters. What is happening around the world has a huge impact on the U.S. economy.
This means the president has that much less power unless he is consulting with int’l economic advisers around the world–and Obama isn’t.
Obmaa just isn’t that sophisticated when it comes to int’l global finance. One can only hope that he will learn on the job–at least learn enough to realize that he needs to be listenning to a very different, larger and more sophisticated group of economic advisers.
But even then, it will take years to repair our economy . Over a period of 8 years the Bush administration built a very, very deep hole.
Fred, going back to health care–I woould love to see the Senate and House agree to something that favored the Hosue plan.
But I fear that the vote in Mass. will cause liberals to retreat while consevatives will move forward.
I hope I’m wrong.
Ed–
I wish, so very much, that what you suggest would happen.
Maggie said:
This is not what representative Democracy is supposed to be about.
——
I have written this before, but let me do it again. If you add the population of the nineteen least populated states together, it would take 19 of them to equal the population of California. California has 2 votes in the Senate while these nineteen small population states have 38 votes together!! When you look at a pure social/people issue like healthcare, it is about people not trees or oil interests, but those tree and oil interests can easily thwart what is in the best interest of most people by this unrepresentative makeup of the Senate. Throw in the filibuster 60% rule, and no wonder nothing gets done for the majority of people in this country anymore!
The Senate is the problem, and if not dealt with, no significant social progress can be expected in government anymore until it may be too late.
NG–
You wrote: “When you look at a pure social/people issue like healthcare, it is about people not trees or oil interests, but those tree and oil interests can easily thwart what is in the best interest of most people by this unrepresentative makeup of the Senate. Throw in the filibuster 60% rule, and no wonder nothing gets done for the majority of people in this country anymore!
“The Senate is the problem, and if not dealt with, no significant social progress can be expected in government anymore until it may be too late.”
I agree completely. More importantly, political scientists like Jacob Hacker (who have a better grasp of the problem than I do) also agree that the Senate is standing in the way of oure repressntative Democracy functioning properly . .
Many people don’t understand that the president just doesn’t have that much power over the economy. It’s an enormous ship, very difficult to turn, and now it’s a ship traveling in global waters.