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.
The problem is that many union workers agreed to (read: settled for) high-end medical plans as a CONCESSION for giving up other benefits and/or proper pay levels. Now they’re getting fucked for those medical plans as well.
I dunno. Based on this, it sounds like the tax fits right in with the rest of the bill: it’s not perfect, doesn’t go far enough, and wasn’t framed correctly, but yeah, is just a part of the equation that makes law that Americans are entitled to universal healthcare coverage for the first time in history.
The Civil Rights Act of 1957 – which the conservatives previously lost their shit over – was of the same ilk. It was no Civil Rights Act of 1964, but it was among the first steps in a long march toward justice.
Once it’s law that all Americans must be covered (which currently is not the law), the only question that remains is how to most fairly, effectively and efficiently do that. Until that point, it’ll always be a debate of whether or not it’s a good idea that all Americans get covered at all.
I entirely understand why the tax is in the bill, but also fully support labor’s opposition to it. The job security, wages, seniority, favorable leave policies, and other protections and benefits unions gave up over the last 15 years in order to maintain strong health coverage cannot be ignored. Strong health benefits are a priority for unions because they don’t want their members to be among the way too high number of people who have insurance but are still sent to bankruptcy due to medical bills.
The sacrifices made by many workers (primarily union, but also others) to maintain health coverage deserves particular recognition given the state of labor relations. The balance betweeen workers and employers has shifted drastically towards employers which will make the process of fighting back from the medical coverage and other losses difficult and lengthy if at all possible in the first place. Given that, I’m concerned that this tax, which may result in reduced costs, could also result in insurance companies and employers cutting the actual benefits to lower the price tag under the taxable level. That is something that no workers, unionized or otherwise deserve.
HCR should not be sacrificed to fix this issue, but until it becomes untenable I will support those who fight to change this tax.
Why don’t we just tax all employer provided health insurance? It is income just as much as a company provided car, stock options, bonuses, salary, etc. We could still tax progressively as we do with income.
Also someone on NPR said that choosing the tax threshold based on employer expenditure is broken, because smaller employers get worse rates for the same coverage. Oops.
I don’t get what you mean by the “worth” of an insurance plan. Is that premiums (both what the employer and individual pay) or how much is paid out in benefits in a year? If the latter, how does that not completely fuck over someone who gets seriously ill? Paying for cancer treatment isn’t “Cadillac” care, it’s just CARE.
@4,
Because it’s a political nonstarter. Besides, people already don’t pay taxes on their own premiums. The government has made the decision not to count health insurance premiums as income.
@1 has a point.
An easier sell would be what BC did, by instituting a carbon tax and reducing corporate and personal income taxes. We could have a carbon tax that paid for health care.
Ram it down their throats. They’re old white men anyway so who cares?
You guys will accept anything at this point. The save face approach. That does not change the fact that this is another stupid provision in a really flawed bill. Why don’t members of congress just grow a pair and tax everyone, not people with “better”, or how about “not as bad”, benefits. Increase the income tax on everyone, including low income people. The only people that should be exempt are pregnant women with health problems and no abortion coverage. They already face the prospect of being thrown under the bus cause the wussies in congress could not stand up to a bunch of childmolesters in robes.
“Paying for cancer treatment isn’t “Cadillac” care, it’s just CARE.”
#5 Thank you. The term “Cadillac” was attached because some members of congress did not want to look like shit when they found a minority to tax “for the good of the group”. They are wussies and they need to man up and tax everyone. The rest of the group also needs to buck up and pay up. There are plenty of people bitching about the “good of the group” who don’t want to make any personal sacrifices themselves. They really should shut the fuck up. If they were serious about the good of the group they would call their members of congress and demand that they be taxed more even if it means they have to spend their money on “the group” instead of drinks at a Capitol Hill bar.
This will effect me. I am willing to pay higher taxes in return for OTHER PEOPLE to be insured. This is the difference between a Democrat and a republican. Hopefully my union (and my wife’s) will take the additional tax burden into account when negotiations reopen.
#10 It is the difference between some democrats and republicans. There are plenty of democrats who are not willing to actively demand that they should sacrifice too. They may say they are willing to take a tax increase if casually asked, but that is useless, and they will often offer up dumb responses like cut the defense budget. (Yes of course that would be nice). Many would just quietly prefer that someone else take a hit. Ann Coulter once said liberals are really good at spending other people’s money. Well, she’s not always wrong.
@10: Why should my taxes go toward paying cops to protect you? Or toward roads to serve you? Or toward water that you drink?
God, you’re so needy.
I’m a union member. I’m willing to take a tax hit until our next contact negotiation.
13
Good boy.
Cause you should expect a reaming…
11
hubba
hubba
Not only is she not always wrong, she is smoking hot. God I wish Democratic women weren’t such water buffaloes…
@14 — Will you vote for a Democrat for president if my insurance rates go down by the next election?