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TPMDC reports that Speaker Pelosi is upset with the White House because they want her to largely adopt the Senate bill in its entirety, including the punitive excise tax on health insurance benefits:

But aides say she's particularly steamed that the White House wants her to largely adopt the Senate bill in its entirety. And she's particularly unhappy that the White House has thrown its weight behind the Senate bill's chief funding mechanism: an excise tax on so-called "Cadillac" insurance policies, which she and many in her caucus have long believed violates President Obama's pledge not to raise taxes on the middle class.

This excise tax would raise over $150 billion over ten years, while the tax on the wealthy (which Pelosi favors) would raise over $460 billion over ten years. I'll go into more detail on the major drawbacks to the excise tax below the jump:

The excise tax, which affects employer-sponsored health insurance plans that cost over $23,000 for family coverage, and single employee plans that cost over $8,500. It also has the effect of incentivizing your employer to drop your insurance coverage for a cheaper, higher-deductible insurance plan according to the CMS:

In reaction to the tax, many employers would reduce the scope of their health benefits. The resulting reductions in covered services and/or increases in employee cost-sharing requirements would induce workers to use fewer services. Because plan benefit values would generally increase faster than the threshold amounts for defining high-cost plans (which are indexed by the CPI plus 1 percent), over time additional plans would become subject to the excise tax, prompting those employers to scale back coverage.

And this excise tax is projected to reduce national health expenditures by 0.3%.

The tax would be 40 pecent of the excess benefit value above these thresholds. We estimate that, in aggregate, affected employers would reduce their benefit packages in such a way as to eliminate about three-quarters of the current excess benefit value. The resulting higher cost-sharing requirements for employees would have an initial, significant impact on the overall level of health expenditures. Moreover, because health care costs would generally increase faster than the CPI plus 1 percent, we anticipate additional, incremental benefit coverage reductions in future years to prevent an increase in the share of employer coverage subject to the excise tax. These further adjustments would contribute to a small reduction in the growth in health care expenditures for affected employees through at least 2019.16 In 2019, these impacts would reduce total NHE by an estimated 0.3 percent.

There was a proposal that would've had the benefit of helping reduce Americans' out-of-pocket spending on health care, and would've provided a further reduction in national health expenditures by 0.4%----the Dorgan prescription amendment.

The excise tax would hit about 19% of employer-provided insurance, thus affecting about 30 million Americans, due to its not being properly indexed by 2016:

Specifically, an estimated 19 percent of workers with employment-based coverage would be affected by the excise tax in that year. Those individuals who kept their high-premium policies would pay a higher premium than under current law, with the difference in premiums roughly equal to the amount of the tax. However, CBO and JCT estimate that most people would avoid the cost of the excise tax by enrolling in plans that had lower premiums; those reductions would result from choosing plans that either pay a smaller share of covered health care costs (which would reduce premiums directly as well as indirectly by leading to less use of covered medical services), manage benefits more tightly, or cover fewer services.

And by 2019, it'd affect about 58 million Americans' employer-provided insurance, if not properly indexed, according to the Citizens For Tax Justice based on their calculations.

The caps above which the proposed health insurance excise tax will apply are set at $23,000 for family plans and $8,500 for individual plans, starting in 2013. These might seem like very high amounts, but they will dwindle rapidly in real terms over time.

That’s because the caps will be  indexed only for general inflation plus one percent, rather than for the much higher rate of expected health care inflation. As a result, according to the Joint Committee on Taxation, the number of families and individuals who will be affected by the new tax will grow rapidly. from 9.1 million couples, single parents and singles without children in 2013 to 24.6 million "tax units" by 2019, with continued rapid growth thereafter. According to our estimate, those 24.6 million tax units hit by the excise tax in 2019 will include about 58 million men, women and children.

Bob Herbert, of the New York Times, also goes into detail about the excise tax in his editorial here, and finds it ludricrous, just as I do, that the excise tax will result in higher wages for Americans:

If even the plan’s proponents do not expect policyholders to pay the tax, how will it raise $150 billion in a decade? Great question.

We all remember learning in school about the suspension of disbelief. This part of the Senate’s health benefits taxation scheme requires a monumental suspension of disbelief. According to the Joint Committee on Taxation, less than 18 percent of the revenue will come from the tax itself. The rest of the $150 billion, more than 82 percent of it, will come from the income taxes paid by workers who have been given pay raises by employers who will have voluntarily handed over the money they saved by offering their employees less valuable health insurance plans.

I asked Richard Trumka, president of the A.F.L.-C.I.O., about this. (Labor unions are outraged at the very thought of a health benefits tax.) I had to wait for him to stop laughing to get his answer. "If you believe that," he said, "I have some oceanfront property in southwestern Pennsylvania that I will sell you at a great price."

A survey of business executives by Mercer, a human resources consulting firm, found that only 16 percent of respondents said they would convert the savings from a reduction in health benefits into higher wages for employees. Yet proponents of the tax are holding steadfast to the belief that nearly all would do so.

This line of thinking about the excise tax helping increase wages is false as emptywheel shows it to be in her takedown of this myth:

Finally, the post [from the White House] quotes from a PriceWaterhouseCoopers paper done for AHIP (and widely discredited as industry hack job). The Administration’s post doesn’t actually claim that this report supports their own claim that the Cadillac tax will raise workers’ wages. Rather, it suggests that employers will restructure benefits in response to the tax. Here’s the full context for the quote the Administration cites.

Although we expect employers to respond to the tax by restructuring their benefits to avoid it, we demonstrate the impact assuming it is applied. As the threshold is indexed to CPI-U which has generally been lower than medical trend, it is expected that many plans that currently have premium rates that are beneath the threshold will ultimately reach it.

That is, PWC is making the argument that the Cadillac tax will hit tons of plans, not that employers will succeed in avoiding the excise tax. In fact, the report goes further to note that by 2016, even the lowest acceptable plans, Bronze plans, will trigger the tax in metropolitan areas.

We estimate that in many metropolitan areas, which tend to have higher than average medical costs, the lowest option plan (Bronze Plan) would be considered a "Cadillac plan" as early as 2016. By 2016 at least one of the mandated plans will be considered a "Cadillac plan" and be subject to the 40 percent excise tax in 17 of 50 states.

PWC included that handy map, too, showing how many plans in the Northeast will trigger the tax by 2016 (the darkest red means even plans with a 65% actuarial value will trigger the tax; the report has maps for Florida and California, as well; note, though, I think the Senate has tweaked rates for higher markets since this report, so even assuming the AHIP report is correct, it’ll take longer for crappy insurance to be taxed).

In other words, the PWC study shows not what the Administration uses its quote to suggest–that employers will successfully avoid the Cadillac tax–but rather, that even the crappiest allowable plans in more expensive parts of the country will trigger the tax as early as 2016.

And here are the studies she cites showing that employers would NOT increase the wages of workers as a result of choosing cheaper plans with fewer benefits, higher deductibles, and higher cost-sharing for employees:


Which is awfully strange, because a lot of evidence suggests that’s what would happen. A Mercer survey of 465 employer health plan sponsors conducted in November found just 16% would pass on any savings to employees.

One argument that some have made in favor of the excise tax is that employers cutting benefits would return the savings to employees in the form of higher wages. However, less than a fifth of respondents (16 percent) say they would convert their cost savings into higher pay.

And Towers-Perrin did a survey in September, this of 433 human resource executives, that shows even fewer employers would share savings with employees.

Although costs are a sensitive business issue today, interestingly, when we asked survey participants how they would respond to various cost scenarios under health care reform, a significant number (ranging from just over a quarter to just over 30%) said they didn’t know what they would do.

But among the majority of respondents who did have an expected course of action, the response was very clear. Regardless of the specifics of reform legislation, these employers do not plan to absorb higher health benefit costs and would take a variet of actions to avoid doing so ... Nearly all would reduce benefits. Some would cut jobs or salaries. And over a third (38%) would increase prices for customers.

Along similar lines, survey respondents who have a clear sense of action in mind (i.e., once again excluding those who gave "don’t know" responses) would not shield employees from any cost increases that reform might bring for them .... And if any savings were to result from reform, most employers would retain those savings in the business (Exhibit 12).

So to review:

  1. 30% in the Towers-Perrin survey said if health reform increases employer costs, they would reduce employment
  1. 86% in the Towers-Perrin survey said if health reform increases employee costs for health care, they would pass those costs on to employees
  1. 9% in the Towers-Perrin survey and 16% in the Mercer survey say they would pass on any savings to employees in the form of wage increases

So employers are saying that the fundamental assumption that went into CBO’s and JCT’s calculations on the Cadillac tax are wrong. If the employers are right, it means that employees will get crappier health care–with more out of pocket expenses–but for the most part get no corresponding raise to help pay for those costs.

The Communication Workers Of America, a labor union, also has a nice round-up of just how regressive this excise tax is for Americans:

Specifically, the reports show:

·  The excise tax will affect large numbers of health plans that reach deep into the middle class.

·  High-cost plans typically are not due to "excessive" benefits. They are largely due to demographic factors in the workforce – age, gender, chronic conditions, and type of industry – and local pricing and practice patterns.

·  The excise tax will not let many workers keep the good health plan they have now. To avoid the tax, affected health plans will significantly reduce benefits and increase cost-sharing (deductibles and co-pays) in order to get premiums below the thresholds at which the tax applies. These cuts will be dramatically larger in the second decade as the difference between health plan inflation and the rate at which the thresholds increase grows exponentially.

·  The excise tax will destabilize the employer-based system resulting in plan terminations, higher costs to workers, and a shift to lower-cost high deductible health plans with limited benefits.

·  There is no evidence that the excise tax "bends the cost curve" – reducing the underlying rate of growth and inflation in the health care system. There will be some modest reduction in health care costs to employer plans and to overall health expenditures – not because the excise tax bends the cost curve but largely because it reduces the amount of health care for which people are covered.

·  The excise tax will not bend the cost curve because it does not address the fundamental cost-drivers in our health care delivery system so that care becomes less expensive and is delivered more cost effectively.

·  Higher cost sharing will lead to lower utilization and foregoing needed care, which will result in worse health outcomes and increased health disparities.

·  Lower utilization has done little to reduce costs in the United States. We are already near the bottom in hospital and physician usage, but our health costs are 50 percent more than the next highest spending country.

·  The excise tax is a large tax increase on middle class Americans, and it is a regressive tax increase, especially when compared with the surcharge on wealthy individuals proposed in the House of Representative's legislation.

·  Most employers will not increase workers' wages in exchange for cutting health benefits, contrary to assumptions made by the Congressional Budget Office (CBO).

R.J. Eskow, a health policy analyst, also notes that the excise tax is hugely unpopular among a majority of Americans, and that Americans far prefer the tax on the wealthy in the House bill to that of the excise tax that they'd likely face on their employer-provided health insurance within the next ten years.

A Washington Post poll taken in mid-October showed that 61% of people surveyed opposed the excise tax, with only 35% supporting it. A USA Today/Gallup poll taken at the same time showed essentially identical results, with 61% against the tax and 34% in favor. An Associated Press poll (pdf) taken a couple of weeks later showed 56% of respondents opposed to the tax and 26% in favor. (The less decisive responses to the AP poll may be due to the way they phrased the question.)

Now Rasmussen's tracking poll on health reform has found that the excise tax remains as unpopular as ever. Rasmussen shows 59% of registered voters opposing the excise tax and only 32% supporting it. Advocates have failed to make their case to the public, and voter disapproval remains strikingly high. The tax is getting no traction at all.

It should also be noted that support for the House alternative to the excise tax has been consistently high. The public's support for the House alternative is, in fact, essentially just as strong as its the opposition to the excise tax. If anything, the House tax is growing more popular over time. Specific numbers:

USA Today/Gallup: 59% support the House alternative, 38% against
Associated Press: 57% support the House alternative, 36% against
Rasmussen: 64% support the House alternative, 35% against

The excise tax is not a progressive policy for Americans--it is a regressive policy largely supported by the White House, Democratic members in the Senate, and pie-in-the-sky economists who somehow think Americans will ~*magically*~ get an increase in their wages from the excise tax. There were other cost-saving measures that would've provided more revenue than the excise tax such as the Dorgan amendment, the tax on the wealthy, and the public option. However, the excise tax is a favorite idea of the neoliberal movement in D.C. as a way to "control" health costs without thinking about how it really affects Americans' access to health care.

Originally posted to slinkerwink on Wed Jan 06, 2010 at 09:03 AM PST.

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