You are going to pay for health care (insurance) reform how?


Paying for health care reform, that is, mostly paying to subsidize the uninsured is necessary for any legislation to pass.  I will not dwell on the probability of the CBO or any other government agency correctly estimating what the true cost will be within the next ten years or the fact that the problem with expanding coverage before finding a real way to manage health care and its cost comes after the first ten years.  After all, I am sure that you know the track record of the federal government estimating the cost of anything be it Social Security, Medicare or a new jet for Ms Pelosi. 

Nevertheless, there are several ideas floating around to raise this needed money, ok I will say it “tax” several ideas to raise taxes.  One of them comes from the Senate Finance Committee and that is to tax so-called Cadillac benefit programs. These rich programs cost too much to receive the full subsidy of a tax-free benefit, so the employer or insurance company will be taxed for providing generous benefits. No doubt many of you are blessed with such employer generosity and equally certain is the fact that your company intentionally provides these generous benefits merely because they are tax free – especially for retirees.  Of course, in no case do unions have any part in this. Yeah, I am being a smart a – -, but we are dealing with politicians after all, so what can you do? 

The final version of all this is not decided, at least when I talked with someone working for the Committee this morning.  What we are told is that the threshold would be set at an annual cost of $25,000 for a family. What is not clear is whether the $25,000 or whatever number it becomes includes only health benefits or health, dental, vision and the amount placed in the FSA.  That of course raises another question, are we talking about a unique calculation for each employee or each group of employees in each option offered by the employer, who knows? 

This afternoon I received an e-mail from the U.S. Chamber of Commerce that said the latest they were hearing from the Senate Finance Committee is that their proposed tax on insurance companies and self-insured employers will raise about $190 billion. The tax would be 35%, on individual plans worth more than $8,350 and family plans worth more than $21,160. 

But here is the interesting point, whatever the number finally is (assuming it survives to the final legislation), it does not begin to be indexed until 2013 so if the number is fixed in 2010 we have three years to catch up and help fund health care reform.  Of course, at this point only a small fraction of employers offer such a plan and in true horror story fashion we are told that executives at a New York investment firm have benefits worth $40,000 a year.  However, not to worry, if we are reforming health care and making it “affordable”, why should we worry that over the next three years the cost of health care will rise any faster than general inflation (he said sarcastically). 

Take two and see me in 2013
Take two and see me in 2013

Here is the first irony, the largest segment of employers that will likely be affected by this tax should it become law are public employers, like states and municipalities because they offer very generous benefit programs.  So now, the citizens of these jurisdictions get to pay for the generous benefits and the tax on the generous benefits as well.  Who said there was no cost-shifting going on? 

But wait, we all know that the design of the benefit program is not the only factor in determining costs, the age of the covered population, the morbidity of the workforce, the geographic area and more all play a part in the ultimate cost.   Get ready for this argument. 

And the second irony is that to avoid this tax, employers will naturally lower the value of the benefits package thereby raising deductibles, co-payment and thereby make health care less affordable for the plan participants.  You have to love this stuff.  Wouldn’t it be great if the final minimum benefits package required under the law had a value of $25,001?

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