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.