The President Gets It Wrong On the Excise Tax

Richard Eskow

The President came close to endorsing the so-called “Cadillac tax” when he was interviewed about health reform on NPR. Here’s what the President said when the subject came up:

“I’m on record as saying that taxing Cadillac plans that don’t make people healthier, but just take more money out of their pockets because they’re paying more for insurance than they need to, that’s actually a good idea and that helps bend the cost curve; that helps to reduce the cost of health care over the long term. I think that’s a smart thing to do.”

The President’s statement is based on several assumptions that have been challenged (and/or directly refuted) by recent studies. They are:

  1. That the excise tax would affect only “Cadillac plans” (a politically manipulative term in this case, not unlike “death tax” for inheritance tax.) There is substantial evidence to suggest that most plans will reach the tax’s threshold because of the age, occupation, or geographic locations of their members – or because more of them are women, whose care typically costs more – and not because their plans are excessively generous. (See Gabel, Dobson, et al.)
  2. That members of the affected plans are paying more “out of their pockets” than “they need to.” In fact, the tax’s most immediate effect will be to ensure that enrollees in the employer plans affected – roughly one plan in five – pay more as a result of the tax. 87% of employer respondents to a Towers Perrin survey (pdf) said they would reduce benefit coverage if health reform increased plan costs. The President’s implication that the plan will save them money is unsupported by any of the 18 recent studies and papers on the topic assembled here (pdf).
  3. Also implicit in the President’s remarks is the notion that money saved on benefits (as employers are forced to cut back to avoid the tax) will be returned to workers in the form of wages. In that recent Towers Perrin survey (pdf), less than one employer in ten indicated it would return any of the savings to employees as salaries or direct compensation – much less, as the President seems to imply, all of it.
  4. That the excise tax will “bend the cost curve” in a positive way. Of all the pet beliefs of tax adherents, this is the one they’re having the most difficulty letting go of – despite the presence of new, contradictory information. Since benefit design only accounts for 3.7% of the cost difference (Gabel et al), there will be no alternative but to cut needed care to avoid the tax. The government could just as easily choose workers almost at random, slash their benefits so that they’re paying more out-of-pocket (or deferring needed care), then claim it’s “bending the cost curve” – but would that make sense?

The President introduces another potential talking point, too, when he says that “the cost of a plan for members of Congress, which are pretty good health care plans, is about $15,000 a year. Right now this fee on Cadillac plans doesn’t kick in until $23,000 under the Senate bill.” We’ll have to fact-check the $15,000/year figure, since I’ve seen other analyses which place the Congressional plan’s costs significantly higher. But whatever the specifics for the Congressional plan, this statement disregards the new studies showing that demographics, not benefits, are the primary drivers of costs.

And when you consider how under-represented women are in the Houses of Congress, that alone could be a significant part of the cost difference. Since it wouldbe difficult to make the case that members of Congress reflect the entire nation demographically, the real question is: How would this tax affect people who are not members of Congress?

The answer, according to a wave of new studies, is: Not well at all.

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