Healthcare

The Truth About The Cadillac Tax

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.

Advertisements

Categories: Healthcare

Tagged as: , , ,

3 replies »

  1. Where ya been? Back in 2009, before PPACA became law, it was totally clear what the Cadillac Tax was. Take, for example, a Washington Post article of December 28, 2009, posted by the infamous Professor Gruber “‘Cadillac’ tax isn’t a tax — it’s a plan to finance real health reform.”

    See: http://www.washingtonpost.com/wp-dyn/content/article/2009/12/27/AR2009122701714.html

    In that article he states:

    “… The Senate assessment on high-cost insurance plans has much to recommend it, which is why it is almost universally favored by health policy experts. It would reduce the incentives for employers to provide excessively generous insurance, leading to more cost-conscious use of health care and, ultimately, lower spending. In other words, it “bends the curve.” It would also be progressive, in that it would take from those with the most generous insurance to finance the expansion of coverage to those without insurance. … But this argument misses an important point: The assessment proposed in the Senate is not a new tax; it is the elimination of an existing tax break that is provided to exactly these firms. … ”

    Another example of how even experts like you, Dick, may miss the true, underlying intent. Though I know you knew this was crap from day one (you just didn’t perhaps know all of the excrement).

    But, I can clear that up for you and all of your readers. Follow the money. It is all about the revenue to the federal government. We have no health strategy, we have no benefits strategy in America. We have a tax strategy, and it all comes down to the scoring. That is, President Obama misled Americans when he asserted that PPACA would not add “one thin dime” to the federal deficit (because some of the benefits, such as CLASS, started long after the funding, and then grew dramatically faster than the tax revenues). See: https://www.whitehouse.gov/the-press-office/remarks-president-a-joint-session-congress-health-care

    But, they had to cook up subterfuges like the Cadillac Tax to get the CBO scoring to work out. And, as I think was mentioned in prior posts, the CBO numbers on Cadillac Tax only work if employers raise wages by an amount that is actually in excess of the reduction in employer spending on health coverage that results from changes in benefits to reduce value so as to avoid the Cadillac Tax.

    Like

  2. Where ya been? Back in 2009, before PPACA became law, it was totally clear what the Cadillac Tax was. Take, for example, a Washington Post article of December 28, 2009, posted by the infamous Professor Gruber “‘Cadillac’ tax isn’t a tax — it’s a plan to finance real health reform.”

    See: http://www.washingtonpost.com/wp-dyn/content/article/2009/12/27/AR2009122701714.html

    In that article he states:

    “… The Senate assessment on high-cost insurance plans has much to recommend it, which is why it is almost universally favored by health policy experts. It would reduce the incentives for employers to provide excessively generous insurance, leading to more cost-conscious use of health care and, ultimately, lower spending. In other words, it “bends the curve.” It would also be progressive, in that it would take from those with the most generous insurance to finance the expansion of coverage to those without insurance. … But this argument misses an important point: The assessment proposed in the Senate is not a new tax; it is the elimination of an existing tax break that is provided to exactly these firms. … ”

    Another example of how even experts like you, Dick, may miss the true, underlying intent. Though I know you knew this was crap from day one (you just didn’t perhaps know all of the excrement).

    But, I can clear that up for you and all of your readers. Follow the money. It is all about the revenue to the federal government. We have no health strategy, we have no benefits strategy in America. We have a tax strategy, and it all comes down to the scoring. That is, President Obama lied (and he knew it) when he asserted that PPACA would not add “one thin dime” to the federal deficit. See: https://www.whitehouse.gov/the-press-office/remarks-president-a-joint-session-congress-health-care

    But, he had to cook up subterfuges like the Cadillac Tax to get the CBO scoring to work out. And, as I think was mentioned in prior posts, the CBO numbers on Cadillac Tax only work if employers raise wages by an amount equivalent to the reduction in spend on health care to avoid the Cadillac Tax.

    Like

  3. Its funny, during the annual enrollment at my company, I have never seen health plans offered by pay grade. Everybody got offered the same basic plans (HMO, non-HMO) and it mostly depended on where you lived and if your doctor took the insurance.

    I thought the reason for insurance was to limit the risk or exposure for the unexpected. Now everybody I work with is gambling and trying to guess if they can put $6k into a HSA and still take another $6k hit for an illness in a single year in order to get a head or stay even. Two major illnesses back to back which is not hard to do with active children and just one could drain most family budgets.

    From the janitor to the managers, I do not know anybody who can fund $1k a month and it not affecting something else in the family budget. The question is what will it hurt; their mortgage, college loans, car repairs, repairs to the house, saving for the 401K?

    I think the 1954 law was more correct even in this day and age versus penalizing employees and employers for having health insurance.

    Like

What's your opinion on this post? Readers would like your point of view.

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out / Change )

Twitter picture

You are commenting using your Twitter account. Log Out / Change )

Facebook photo

You are commenting using your Facebook account. Log Out / Change )

Google+ photo

You are commenting using your Google+ account. Log Out / Change )

Connecting to %s