TPM reported today that the excise tax on generous healthcare plans—the supposed-Cadillac tax—is behind the latest delay in the healthcare reform (HCR) process.
The addendum basically ensures that more high-end healthcare plans will be exposed to the excise tax as time goes on. As a cost-saving measure this will be very effective, but it will also increase the burden on already strained employer-provided benefits. And it will be a blow to organized labor, which has vehemently fought against this tax since the idea was introduced. (They preferred the version of reform which would have raised taxes on the rich to pay for reform.) Although the AFL-CIO is not expected to withdraw its support of the bill after this latest setback, they certainly aren’t expected to be too happy about it.
This kerfuffle is just the latest entry in the long saga of contentious, and at times embittered negotiations over the proposed excise tax. If you've been paying any attention to this torturous process, you’ve probably heard of the Cadillac tax, but haven't had the time to follow it too closely. But now as HCR is looking more and more likely to pass, you might want more. Here is a quick overview of the tax and the arguments over it for those of you who have a life outside of following the obscure caveats of the ever-shifting HCR proposals.
In its current iteration, put forward in Obama’s proposal, eligible health benefits would face a 40 percent surtax, to be paid by insurers, who would, in turn pass the costs on to employers, etc. The Cadillac tax would affect family plans in excess of $27,500 and individual plans of more than $10,200. To put those numbers in context, the average family insurance plan is worth $13,500. Even if you have managed to get your hands on insurance benefits of that magnitude, the only part that gets taxed is the money that comes in over the $27,500 line (say your plan is worth $28,000, the insurance company would only have to pay taxes on 40 percent of $500). Dental and eye care are not included, and the tax won’t go into effect until 2018.
Previous versions of the tax hit smaller plans, starting at $21,000 for families and 8,000 for individuals. But the earlier plans were met with vehement opposition from unions and progressives who called it a tax on the middle class, and feared the impact it might have on those blue collar voters in Obama’s fragile coalition. “This will destroy the Democratic Party and progressive politics for 30 years," Jerrold Nadler (D-NY) told Mother Jones. (They also pointed out that the revenues raised by the House’s revenue plan—tax the rich—would dwarf the excise tax.)
But the fact is that the excise tax won’t alienate most blue collar voters, because most blue collar voters don’t have generous benefits these days. If anything these will be the people benefiting the most from the subsidies, and even the Medicaid expansion. And what is more, the excise tax isn’t meant to be a simple revenue source. As Ezra Klein of the Washington Post described it: “The excise tax is a tax that's meant to change behavior, much like a cigarette tax.” As Klein explains (and I seriously suggest you read his post that most influenced my thinking on the issue), it would theoretically give the competitive advantage to insurance companies that hold down costs by taxing those who don’t rein in their spending. It is also one of the few aspects of HCR that actually attempts to directly address costs. Healthcare costs keep rising at a ridiculous rate, and this reform, as beneficial as it could be, doesn’t do nearly enough to address this. The current excise tax will bring in chump change at first, which is why labor hasn’t protested too much at today’s expansion. But nonetheless, it is a first, small step towards direct experimenting with cost controls. And boy do we need (pdf) to encourage that.