December 29, 2009 /

A Look At The Cadillac Tax

Bob Herbert has a great piece today tearing about one of the problems I have with the health care bill – the Cadillac tax. First off is Bob’s explanation of the system: The tax would kick in on plans exceeding $23,000 annually for family coverage and $8,500 for individuals, starting in 2013. In the first […]

Bob Herbert has a great piece today tearing about one of the problems I have with the health care bill – the Cadillac tax. First off is Bob’s explanation of the system:

The tax would kick in on plans exceeding $23,000 annually for family coverage and $8,500 for individuals, starting in 2013. In the first year it would affect relatively few people in the middle class. But because of the steadily rising costs of health care in the U.S., more and more plans would reach the taxation threshold each year.

Within three years of its implementation, according to the Congressional Budget Office, the tax would apply to nearly 20 percent of all workers with employer-provided health coverage in the country, affecting some 31 million people. Within six years, according to Congress’s Joint Committee on Taxation, the tax would reach a fifth of all households earning between $50,000 and $75,000 annually. Those families can hardly be considered very wealthy.

This is one of those downsides the bill backers have ignored while the bill killers have been touting. The bill backers would argue that the bill helps keep health care costs down, but in all honesty that is an estimate in the nicest of terms. Wendell Potter pointed out last week that the insurance companies are already looking for loopholes to continue to raise their rates. Finding loopholes and ways to game the system is a common practice in any business sector. We wouldn’t have the financial crisis right now if the financial sector played by the rules, so what is to say the health care sector will do the same?

Taking that tax, Bob also points out that it isn’t really expected to raise that much money. Instead the expectation is that people will go with lower health care plans, which result in less coverage and higher out of pocket expenses. The company saves money by shifting the costs directly to the employer, which can be seen here:

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!’ ”

Bob points out again what I keep pointing out – the CBO and Congress as a whole is planning on the “good will” of business. It reminds me of the whole “trickle down theory” of the Reagan years, where if a business has more money in their pocket they will pass it on to their employees. They never do. Instead we have seen CEO salaries increase almost 10 times faster than salaries and stock prices soar. Sure that might help the employee a little if they have a 401k, but that little bit of help isn’t as much as if the money was passed straight onto them.

As it stands right now this piece of the legislation is funneling money through reduced benefits from the worker back up to the employer. The empty minds of Congress might not consider benefits as part of an employees salary, but workers sure do.

That isn’t progressive at all and since this Cadillac tax was put in to try and win some Republican support, which it didn’t, stripping it out in conference is a great way to make the bill more progressive. What’s really funny is the “no new taxes” right didn’t try to strip this provision out via an amendment. If they would have done that, I got a feeling it would have passed.

UPDATE:

I missed this in the debate, but apparently some Democratic senators have threatened to block the bill if the Cadillac tax isn’t in there. This becomes a great place for President Obama to turn around the bad press he has (rightfully) gotten on health care and go to work getting rid of it. The House version doesn’t have it, but the Senate does. The House version makes up the money difference by a more reliable method – increased tax on the wealthy. Let’s go that route then we have a plan that will let Americans keep their current plans, while providing a more guaranteed source of revenue for the program.

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