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Crossposted from Hillbilly Report.

One of the main arguments about healthcare reform has been just how we will fund the much needed changes to our broken, expensive and ineffective system. Unfortunately for millions of working Americans, so-called moderates have been balking at raising taxes on the richest 2% of us, the very people who profited so handsomely from the economic boom of the last few decades that turned into a bust last year. Yes, instead of asking the very wealthy among us who can afford it most to sacrifice, once again working Americans are being expected to make all the sacrifice in funding healthcare reform.

In lieu of asking the very rich to sacrifice, many Corporate-controlled lawmakers are talking about taxing the medical benefits of those of us who are fortunate enough to have good healthcare plans, or so-called "Cadillac plans". In most cases, these benefits have been negotiated and fought for over the decades by middle-class union workers.

However, this is quite simply a very bad idea. Not only because it requires the middle-class to sacrifice while the wealthy once again get a free pass, but because the tax on "Cadillac" plans written into the Senate Finance Committee bill by Corporate Democrats could actually end up affecting up to one-third of all plans in the very near future.

This little known and discussed possibility was a key finding of a recent Economic Policy Institute study:

The Senate Finance bill, America’s Healthy Future Act, proposes an excise tax of 40% on employer-sponsored health insurance premiums which exceed $8,000 for single plans and $21,000 for family plans in 2013. Previous research has shown that high-priced plans are not always high-value or high-quality plans. Furthermore, the Joint Committee on Taxation estimates that about one-third of all health plans would be affected by this excise tax by 2019. This would seem to suggest that either one-third of all plans are actually so-called Cadillac plans, or, more likely, the excise tax will hit a lot more ordinary plans than suggested.

The key is in the indexing.  While the excise tax would initially apply to plans costing more than $8,000 a year for individuals and $21,000 for families, these cut-off values are indexed to the growth in overall inflation plus one percent, or more specifically consumer price index plus one (CPI+1).  But medical costs and health insurance premiums rise at a much faster pace.  In fact, over the 2000s, premiums rose three to four times faster than the CPI.  Indexing the excise tax cut-offs to this slower rate of growth means that an increasing number of plans in future years will be affected by this tax. That said, the tax would have a wide reach even in its first year, applying to 19% of individual plans and 14% of family plans.

This tax was proposed under the assumption that folks would choose lower cost plans to avoid paying the tax on their "Cadillac" plans and that they would see higher wages due to having lower cost plans which would in turn increase tax revenues for the government. However, it is unlikely that workers would see higher wages under any circumstances and this would create a problem of less coverage, and other expensive drawbacks for working Americans which would include higher deductibles, more unreasonable co-pays, more out-of-pocket expenses and other higher shared costs.

These higher costs of coverage would not be the advertised reform. Insured working Americans have already seen out-of-pocket costs go through the ceiling in recent years as more than half of all bankrupcies have been caused by medical expenses and around three-fourths of those bankrupcies occured among workers who had health insurance. An excise tax on their plans would only worsen the burdens of those most in need of medical care and those with pre-existing conditions. This would cause them to continue putting off medical care because of cost and when they become sicker as a result it will continue to raise costs for everyone.

Another cold, hard fact is that this proposed excise tax on "Cadillac plans" will actually hit many more plans than is being advertised by it's proponents and it would actually hurt most the people that healthcare reform is supposed to be helping:

The proposed excise tax would hit far more health plans than advertised.  It cannot be argued with any reliability that the tax will only affect very high cost health plans unless we assume that one-third of people who have health insurance have gold-plated plans. Furthermore, health plans are expensive for many reasons other than simply that they provide more comprehensive coverage. For instance, small businesses are paying high premiums for the insurance they provide to their employees not because the plans are especially lavish, but because they have high administrative costs and include too few employees to constitute the broader risk pool that would qualify them for lower premiums.

While the excise tax would free up enormous sums of money to defray the costs of fundamental health reform, taxing benefits should not be considered until large-scale health reform is in place to cover everyone.  Without affordability subsidies and a strong national insurance exchange up and running, a policy of taxing health benefits over a certain dollar amount would serve as a blunt instrument that may do great harm to the very people we should be striving to help.

In the end a tax on these plans just simply does not make much sense. Only one group of people can afford to pay for healthcare reform, and as pointed out by the AFL-CIO it is not the hard working American family that is working harder and harder for less money and benefits in recent years:

There are better ways to pay for health care reform. The bills proposed in the U.S. House, for instance, pay for it with a combination of employer responsibility, a surtax on the very wealthy and the significant savings realized from having a strong public health insurance option.

Since the goal of health care reform is to lower costs for families and guarantee access to quality care, an excise tax that imposes a financial burden on working families just doesn’t make sense. In fact, Sen. John McCain (R) proposed a tax on health care benefits in the 2008 election—and lost. America’s working families have made their feelings clear: they don’t want to pay for health care with a tax on their benefits.

It is past time that lawmakers get real about funding healthcare reform. "Cadillac" plans that have been fought for and won by working Americans simply cannot, and should not be expected to fund this reform and using them to do so will only cause more problems. God forbid politicians get the guts to tell the greediest and least patriotic among us that it is time that the profits they earned are partially used to fund the betterment of our country and that it is time to give back to the system that allowed them to be so successful. That is the only way that true reform can ever really be funded.

Originally posted to RDemocrat on Fri Oct 23, 2009 at 09:20 PM PDT.

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Comment Preferences

  •  Which is why (2+ / 0-)
    Recommended by:
    marykk, Lujane

    we need to have a Robust Public Option. One that is available for everyone. If they want to do things, like tax Cadillac plans, or force individual mandates, all revolving around lower costs, and paying for the plan, then they must include an option that everyone can buy into, that will allow for the same coverage as the Cadillac plans, but at a cheaper costs. Should we tax Cadillac plans? I'm kind of indifferent about it, and I would have to review the final bill, before I pass judgment. But if we do, then we must have a Robust Public Option.

    "There are those who look at things the way they are, and ask why... I dream of things that never were, and ask why not?" -Robert Francis Kennedy

    by LiberalKentuckian on Fri Oct 23, 2009 at 09:29:59 PM PDT

  •  Consider them dead (14+ / 0-)

    Here's my impression - taxing Cadillac plans seemed like a great idea when the Dems though that they were punishing the rich. But they had an "oh shit" moment when they realized it would hit the unions.

    Consider the plan DOA.

  •  disagree (1+ / 0-)
    Recommended by:

    I'm not against taxing cadillac plans as one of several ways to raise funds. I also think it would bend the cost-curve. I actually think some rationing is necessary to keep the cost of the  system under control. I'm realistic about it.

  •  And yet I read today that the wealthiest people (5+ / 0-)

    in Germany are asking that they be taxed at a higher rate to help those less fortunate and to help balance their country's budget.  We are a long way from that kind of altruism in the USA.

    "Those who make peaceful revolution impossible will make violent revolution inevitable." - JFK

    by moose67 on Fri Oct 23, 2009 at 09:43:00 PM PDT

    •  Different standards of left and right, for one... (2+ / 0-)
      Recommended by:
      snakelass, offgrid

      Germany's present ruling coalition considers itself to be center-right - but is to the left of quite a few US Democrats.  I think the idea of the United States being a center-right nation has been misinterpreted by the media based on the misconception that the Republican Party is still "center-right."  We may well be a center-right nation by European standards, but the Republican Party has moved so far to the right that the world's idea of center-right is a Democrat, and not necessarily even a Blue Dog.  Even European conservatives are reluctant to propose privatizing health care.

  •  Policy wise it makes sense to tax them (1+ / 0-)
    Recommended by:
    James Allen

    The rationale behind it is simple.  You tax higher plans so that people choose less expensive plans.  What this does is it gets people to focus on plans that they NEED not what they WANT.  This makes all costs cheaper.  It brings down premiums, it brings down test costs.  Everything.  

    Right now, we have a problem where people get too many tests simply because they have the ability to.  This works on ebbing that.  That's why the CBO likes it, and that's why other budget folks do as well.

    I would agree, were we in another discussion to tax the upper individuals higher rates.  Were we in for a simple tax revenue discussion.  The purpose of this isn't primarily for tax revenue.  It's for legitimate policy purposes.

    •  Many tests are liability based m. (1+ / 2-)
      Recommended by:
      Hidden by:
      Futuristic Dreamer, ozsea1

      I realize the trial lawyer lobby is huge here but at least ackowledge that part of why so many expensive unnecessary tests ordered have CMA written all over them.

      Man who live in glass house wear pajama.

      by sylvien on Fri Oct 23, 2009 at 09:55:23 PM PDT

      [ Parent ]

      •  I'm not saying they aren't (1+ / 0-)
        Recommended by:

        But how many people get all sorts of tests because they want to.  Because they can.  It's too many.  This solves part of that problem.  It's not going to completely solve it, but it's an approach that makes it easier to stop it.

        Personally, this is one thing I don't disagree with baucus on, and the House is acting extremely irresponsible in discarding it because the unions tell them to.

        •  I agree with people demanding m. (0+ / 0-)

          unessary testing.  If they had to pay out of pocket they probably wouldn't but because it's free to them they do.

          I wish we could expand Medicare to cover all catastrophic coverage to all but individuals pay for routine strep tests and the like and those unable to pay completely subsidized.

          Medicare could easily be expanded and I don't know why we need yet another public option.  It IS the public option.  Properly fund it and make it the public option.  Problem solved

          Man who live in glass house wear pajama.

          by sylvien on Fri Oct 23, 2009 at 10:05:55 PM PDT

          [ Parent ]

          •  The Public option isn't the only cost saver in th (0+ / 0-)

            e bill.  There's plenty of other things like the benefits tax in the bill.  All of which add up to cost savings greater than the public option.  I'm not saying the public option is not a worthwhile goal, but it's not the ballgame either.

          •  Neither of you are operating in the real world. (22+ / 0-)

            The idea that people get unnecessary tests just because they can is total bunk, and the idea that unneeded testing is liability driven is almost equally bunk.
            The first is the moral hazard argument - that people who don't have to pay the full cost of something will consume a greater amount.  That works for luxury goods, but medical procedures are not luxury goods.  The consumption of medical care and testing is uniformly, 100% unpleasant - ranging from just mildly annoying and embarassing, like a prostate exam to really miserable and scary like a cardiac cath.  In actual fact, based on 28 years in the front lines of health care, I can tell you that virtually none of excess testing is patient driven, it is nearly all doctor driven and is not subject to the same economic forces that govern other consumer behavior.  if you have come into the ER with chest pain and the doctor tells you that he thinks you need x test to determine whether it's your heart or not, you are in no position to make a rational, price driven decision on whether or not to go for it.
            Next, is it liability?  The first answer to that is that the states that have enacted extreme limits on malpractice awards have seen no reduction in the rate of growth of health care costs or utilization.  We also know that only a minute percentage of the patients who are injured by healthcare providers sue.  My personal observation from all those years in one of the riskier areas of care - cardiology - is that the ordering of excess tests is driven by several factors - the biggest is the culture of the area - what the norms are among local doctors.  The second is the availability of specialists - the more cardiologists there are in an area, the more people get heart caths.  the fact that we treat medicine as a business in the first place is a big driver in itself.  A hospital gets a new piece of testing equipment.  So the neighboring hospital wants one too to remain competitive.  Now there is excess capacity, so there is all sorts of subtle pressure put on docs by administrators to use the stuff so it gets paid for. etc.
            But, back to the beginning: it's not driven by consumers and the right wing "reform" of making people pay a larger part of the cost themselves isn't going to help.

          •  You all act as if many of these tests are a (2+ / 0-)
            Recommended by:
            snakelass, ozsea1

            walk in the park. Many are uncomfortable and possibly dangerous. Not exactly something you'd want to do very often.

            It's the Supreme Court, stupid!

            by auapplemac on Sat Oct 24, 2009 at 01:48:28 AM PDT

            [ Parent ]

        •  Recced To Counter HR Abuse (0+ / 0-)

          I sure hope that was an accidental HR.

      •  Citations please (4+ / 0-)
        Recommended by:
        slatsg, snakelass, trashablanca, skohayes

        There are plenty of statistics where people get more than what they need.  Goldman Sachs and union employees do this as a negotiating tact.

        Tact ? Really ?

        Your assertion is nonfactual. Prove otherwise.

      •  Prove it ! (4+ / 0-)
        Recommended by:
        slatsg, snakelass, trashablanca, skohayes

        I realize the trial lawyer lobby is huge here

        Rightwing talking point.

        The next time you need an attorney, defend your own damn self.

    •  There are NO health plans nowadays (2+ / 0-)
      Recommended by:
      Futuristic Dreamer, ozsea1

      that provide people with more benefits than they need. These plans are the adequate ones.

      If wanting the country to succeed is wrong, I don't want to be right.

      by Angela Quattrano on Fri Oct 23, 2009 at 10:26:34 PM PDT

      [ Parent ]

  •  It's an American tradition, lets do it again- (2+ / 0-)
    Recommended by:
    snakelass, ozsea1

    tell the [wealthy] it is time that the profits they earned are partially used to fund the betterment of our country and that it is time to give back to the system that allowed them to be so successful

    -- We are just regular people informed on issues

    by mike101 on Fri Oct 23, 2009 at 09:47:35 PM PDT

  •  Great diary. The epi analysis is sound (3+ / 0-)
    Recommended by:
    snakelass, Port City Moon, ozsea1

    And those wanting this should realize this was the McCain plan and I see some of those people here sadly defending it and most here just assume we can do this without even reading your diary and the epi analysis.

    Pro Life??? Conservatives want live babies so they can raise them to be dead soldiers!- George Carlin

    by priceman on Sat Oct 24, 2009 at 01:28:57 AM PDT

  •  I can't believe anyone disagrees with this (2+ / 0-)
    Recommended by:
    snakelass, ozsea1

    Too bad there are trolls in your diary, and idiots in congress.

    "I object to violence because when it appears to do good, the good is only temporary; the evil it does is permanent."

    by Futuristic Dreamer on Sat Oct 24, 2009 at 01:34:54 AM PDT

  •  This was John McCain's idea during the campaign. (5+ / 0-)
    Recommended by:
    slatsg, snakelass, offgrid, skohayes, ozsea1

    We should ALL know by now that republicans don't suggest any ideas to help the Democratic agenda unless those ideas are designed to sabotage the Democratic agenda. The idea of taxing "Cadillac" plans was engineered by republican strategists to create opposition to healthcare reform. Otherwise McCain wouldn't have brought it up. If we need revenue, it would be better that if came from anything other than taxing people who can afford healthcare. TAX SOMETHING ELSE, otherwise we're just playing into their hands.

  •  Good points - I agree. (1+ / 0-)
    Recommended by:

    I suspect the whole bit about taxing Cadillac plans is just one more ploy to avoid the issue - genuine health care reform will be expensive, and it will need to be paid for. Even the uninsured and never-use-health-care segment of the middle class is already paying for themselves as well as for everyone else - why not formalise the deal? There are some taxes that are well worth paying (IMHO).

    I'm one of the odd ones at DKos - I favour single payer modeled after the Australian system. Everyone pays, everyone receives. They have a 1.5% income tax surtax that pays for their universal, single payer health care system. I'd be very happy indeed to pay a 2% surtax on my gross income if it meant that everyone in the US, including me, got decent health care.

    From each according to his ability, to each according to his needs. Why is that old Christian tenet now un-American, especially to the so-called Christian right wingers?

    Maxie Baucus took an axe, gave Single Payer 40 whacks. And when he saw what he had done, gave Public Option 41. (NO, Max! Bad Senator!)

    by SciMathGuy on Sat Oct 24, 2009 at 05:51:00 AM PDT

    •  Let's look at some math.. (1+ / 0-)
      Recommended by:

      Current cost of the Medical-Industrial complex, about $2.5T.

      2004 adjusted gross income for all taxpayers, about $7T.

      Income increased about 8% by the end of 2006 according to this, so make that income perhaps 20 percent higher now, or $8.4T.

      Percent of income represented by MI complex, 100x2.5/8.4 = 30.

      This is an approximate number, but quite a bit higher than the 1.5 to 2 percent you contemplate.

      To have the rich pay for all of that, well the same IRS numbers show that if you confiscated the entire adjusted gross income of everybody down to those with an adjusted gross income of around 70 k a year, you'd get about $2.5T.

      Obviously, it's being paid for now, so the money is flowing from somewhere, including employer contributions to insurance premiums and other sources. But it's a lot more than a couple of percent, and it's the redistribution of that sourcing that causes all the sturm and drang.

      Moderation in most things. Except Reactors. IFR forever!

      by billmosby on Sat Oct 24, 2009 at 10:09:17 AM PDT

      [ Parent ]

  •  An entire nation of self-centered whiners. n/t (0+ / 0-)

    Moderation in most things. Except Reactors. IFR forever!

    by billmosby on Sat Oct 24, 2009 at 06:05:40 AM PDT

    •  I disagree. (0+ / 0-)

      And I don't think you've given the matter fair hearing.

      It isn't a simple matter of coming up with more money and then being able to buy whatever you want; it's a matter of having a relatively limited supply (in this case, the supply of health care services) and making sure that everyone gets a reasonable share. If we have one class of people getting their hang-nails and botox treatments attended to with the same tax advantages as other people are having life-saving medical therapies, that means that the demand for hang-nail and botox treatment will be competing with no impediments against life-saving medical therapies.

      Better to tax hang-nail and botox treatments so that more resources are available for life-saving medical therapies.

      Also, if we have minimum levels of guaranteed/required medical insurance coverage, but allow people to have better coverage with the same advantages, this would in all likelihood lead to the guaranteed/required coverage being really poor, and most people relying on higher levels of coverage. Imagine what public schools would be like if people didn't have to pay taxes for public schools if they sent their kids to private schools.

      Yes, I'm exaggerating here, but I hope you can get my point.

      "Honest people of good will can only promote things which will not be overtly opposed to this system, because the system is very strong." -- Israel Shahak

      by ProbStat on Sat Oct 24, 2009 at 08:09:05 AM PDT

      [ Parent ]

      •  oops (0+ / 0-)

        didn't mean for that to be a response to you, billmosby

        "Honest people of good will can only promote things which will not be overtly opposed to this system, because the system is very strong." -- Israel Shahak

        by ProbStat on Sat Oct 24, 2009 at 08:09:52 AM PDT

        [ Parent ]

        •  Who was it for? (0+ / 0-)

          Anyway, I think we're in some kind of agreement.

          The whole idea of medicine has gotten seriously out of control, and just going on the same merry way and attempting to get one small, if rich, segment of the population to pay for it is ultimately a losing game. Just going on with cost improvements on the margins is not all that much better in the long run. We all have to have good basic care first, and then see what we can do about more advanced stuff after that. We're a long way from that first goal at the moment, and going the wrong way to boot.

          Moderation in most things. Except Reactors. IFR forever!

          by billmosby on Sat Oct 24, 2009 at 09:50:16 AM PDT

          [ Parent ]

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