At least now we know the truth about the so-called 40% Cadillac tax on valuable health plans. According to one of the designers of Obamacare, the tax is a back door way of getting back some of the tax-free status of employer-paid health benefits.
Now look at the paragraphs I underlined. The rich receive more value from the tax exclusion because the rich PAY THAT MUCH MORE IN TAXES. In addition, since the most expensive plans tend to be union and public employee plans, to say that the rich tend to have more expensive health plans through their employer is absurd. In fact, among large employers who in the past may have had good health plans, all employees are typically in the same plan. Of course, if you define rich as a salary of $75,000 they may have a point.
I won’t comment again on the notion that good health plans are the main driver of health care costs, it’s silly.
And about that additional revenue; well employers are not going to pay the tax, the are cutting benefits which disproportionately hurts lower income workers. Employers will not make up the difference with higher pay. Finally, any additional federal revenue resulting from lower tax deductions employers take because of lower cost plans, is coming directly from the pockets of middle income workers.
In summary, what is really regressive are the steps being taken to cope with this tax, just ask the middle class family with a high deductible health plan trying to fund a HSA and still paying 25% of more of the premium.
Don’t Repeal the Cadillac Tax – Ezekial Emanuel and Bob Kocher, NYT
Rather than a triumph of bipartisanship, this would be a big mistake, for a number of reasons. In its first eight years, the Cadillac tax will raise some $91 billion. Repeal it and politicians — if they are being fiscally responsible — will have to find other sources of revenue rather than add to the deficit.
But more important, the tax makes sense. It was imposed to counter the negative effects of the government subsidy of company-paid health insurance. We can’t get rid of that subsidy, but we can reduce its impact. The subsidy was encoded in law in 1954, when Congress passed an act making an employer’s contribution to the premiums for workers’ health insurance tax-free. This legislation gave employers an incentive to expand health insurance. Today, about half of all Americans get their insurance through their employer (or the employer of a relative) — and benefit from the tax exclusion.
But the subsidy has created serious problems. For one thing, it is hugely regressive. The rich receive nearly triple the financial benefits from the tax exclusion than those with lower incomes because they are taxed at a higher rate and tend to have much more expensive health insurance. The health care tax exclusion is the single largest tax break in the United States, reducing federal revenue by more than $250 billion per year.
By providing an incentive for the purchase of ever-more-generous health insurance, the tax exclusion has been a major driver of health care inflation. By covering more services, offering more choices and lowering the costs people experience, expensive plans encourage people to use more health care services and, when there are options, more expensive services.
For instance, patients might use the emergency room for sore throats, or go to specialists instead of their primary care physician to adjust their blood pressure or thyroid medications, because their more generous insurance plan lowers the cost of using these expensive options.
This is no small matter. According to several economists’ recent analyses, the tax exclusion may account for a more than 30 percent increase in health care spending for those with employer-sponsored insurance, because of this incentive to use more health care services.
In thinking through health care reform, President Obama supported reform of the tax exclusion because of its central role in fighting the scourge of health care inflation. He and his congressional allies recognized that the health care law needed to combine modifications to Medicare and Medicaid with changes in the private sector to effectively fight inflation.