Taxing “Cadillac” Plans: Three Progressive Views
Yesterday, Jonathan Gruper had an enthusiastic endorsement of the Senate bill’s excise tax on high-cost health care plans, known as the “Cadillac” tax:
The Senate assessment on high-cost insurance plans has much to recommend it, which is why it is almost universally favored by health policy experts. It would reduce the incentives for employers to provide excessively generous insurance, leading to more cost-conscious use of health care and, ultimately, lower spending. In other words, it “bends the curve.” It would also be progressive, in that it would take from those with the most generous insurance to finance the expansion of coverage to those without insurance.
The other half of the idea behind the tax is that it will create billions of dollars in revenue from higher taxes on the increased income of workers whose employers give some of the money they save on health care costs back to their employees in the form of higher wages.
Bob Herbert is not persuaded:
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.
Can you believe it?
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.
“In the real world, companies cut costs and they pocket the money,” said Larry Cohen, president of the Communications Workers of America and a leader of the opposition to the tax. “Executives tell the shareholders: ‘Hey, higher profits without any revenue growth. Great!’ ”
Ezra Klein replies to Herbert here.
Barbara O’Brien synthesizes and wraps it up.
10 Responses to “Taxing “Cadillac” Plans: Three Progressive Views”
Incomes are taxed in the United States. Medical care insurance provided to employees is granted an exemption from the income tax, as is disability insurance. Life insurance and other types of insurance are taxed at income tax rates. They should just limit the exemption rather than use a new tax. My main complaint is they are charging this off as a flat excise tax rather than as income subject to proportional taxation.
I might add that complaining about this tax seems a little strange. We as a country have once again decided to continue to pay nearly twice as much for health care than we need to while accepting poorer care so we don't have to deal with the agony of government control. But this time we are going to improve the care through the use of what we know will be largely ineffective government regulation while continuing to pay twice what we should. As a measure of stupidity this far exceeds any tax.
[We as a country have once again decided to continue to pay nearly twice as much for health care than we need to...]–
Correction, not twice as much but THREE TIMES as much!
Everyone should be able to buy healthcare without paying further taxes for the healthcare coverage and additional services they want. I didn't realize healthcare was considered a luxury item which the government could tax more expensive plans.
If there is a national healthcare then everyone should be guaranteed certain benefits. However those who want more personal healthcare services should be able to buy the coverage they want without incurring excise taxes.
At the risk of defending the health care bill…
If it is laughable the companies would convert savings to health care plans into higher wages, then I would ask: why don't those companies just cut their health care plans now and pocket the savings? I assume they don't because they feel their health care benefits help them attract good employees. If that's the case, then it is reasonable to argue that if those employers are effectively forced to cut their health care benefits, they will seek an alternative means to compensate their employees to the level that they believe they need to in order to continue to attract good workers. Of course it probably won't be a 1-to-1 correspondence between health care benefits cut and wages raised, but I'm not sure that the CBO really made that assumption. Also, even if employers don't raise wages and effectively use it as an excuse the lower labor costs, that would probably be more because of the economy as a whole where labor costs are naturally decreasing as unemployment rises. But once the labor market becomes more competitive, it makes sense that those employers would then need to raise compensation to account for the fact that they now have less generous health care benefits.
But I'm not surprised that a union boss doesn't see it that way.
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That is very true. But You can get always get a full medical coverage at the lowest price from http://bit.ly/68ShhE if you do your home work you can find the best plan.
It don't cover everything and nobody can aford it when it does cover even a little.
Many different variables might push health plans into “Cadillac” territory, including geographic location, plan demographics, and other characteristics of the insured population. More at http://www.healthcaretownhall.com/?tag=cadillac…
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dr.e