No Middle Class Health Tax

The White House Weighs In on Health Reform. What's Next?

Richard Eskow — Mon, 22 Feb 2010 22:35:16 -0500

The White House has just released "The President's Proposal" on health reform. It must be considered in context, and the context is this: The House and Senate have each passed a bill and they're deadlocked on the differences between them. The President is outlining what he considers a reasonable resolution of the two bills, with the expectation that it will be used to guide the remaining negotiations.

Will it work? Consider this: The alternative is no legislation at all.

The President is using the Senate bill as the template for the final legislation. But that bill will need to be amended, using reconciliation, in order to be acceptable to the House. So the only way to pass this legislation is by designing a reconciliation bill that will be acceptable to both chambers. Success will depend on the extent to which the President's proposal meets the House's biggest objections, which can then form the basis for a reconciliation bill that will pass in the Senate.

There were four major areas of difference between the House and Senate bills that caused problems for House progressives. The House members wanted to close the "donut hole" on Medicare drug costs, eliminate the excise tax on high-cost health plans, make coverage more affordable for lower and middle-income Americans, and have the Federal government pick up more of the increase in Medicaid spending. How successfully does the President's Proposal address these four issues?

The President's draft unequivocally closes the "donut hole," which is estimated to cost $38 billion over 10 years. Score one for the White House. It will be very difficult for the Senate to push back on this change, which is politically popular, so hopefully this is a done deal.

What about the excise tax? The White House proposal says that reform will "make insurance more affordable by providing the largest middle class tax cut for health care in history." They're no doubt referring to the proposed tax credits for health premiums, but the effects of those credits are likely to be heavily diluted by Obama's proposal to retain the excise tax on so-called "Cadillac" health plans, which will fall most heavily on the middle class (and, as was demonstrated in a new report last week, not on union members.)

The excise tax is still in the President's Proposal. So are the improvements to the tax negotiated by unions, from the look of things. The Proposal appears to retain adjustments for geography and for retired workers between the ages of 55 and 65 (although we're still awaiting confirmation of that.) The negotiated five-year delay until 2018 for applying the tax to union-negotiated health plans is still there, but broadened out to cover all plans, not just collectively-bargained ones. So the net result of the labor/White House agreement is that unions scored a victory for every worker who receives health benefits through their job, protecting them from the risk of having their benefits cut due to forces beyond their control.

The White House Proposal also says that it "increas(es) the threshold ... on the most expensive health plans from $23,000 for a family plan to $27,500." But that's just salesmanship: The original plan had the tax beginning in 2013 - the delay of the tax to 2018 puts the threshold at which the tax applies at virtually the same level as that already negotiated with labor.

The good news on the excise tax, then, is that it has been delayed and its effects have been moderated. The bad news is that it's still a bad idea. Rep. Joe Courtney is already pushing for a delay, saying in a statement today that "the excise tax issue should be set aside and studied rather than imposing a tax eight years in the future. Delaying the tax by nearly a decade and hoping that it doesn't hurt working families is like throwing a dart in the dark."

So at least some members of the House are likely to push back on this aspect of the President's draft.

What about affordability? The jury's still out on this one. Through a combination of tax credits, assistance, and costs borne by insurers, families making less than $44,000 and more than $66,000 per year would pay less in premiums under Obama's plan than they would under the Senate bill.

Families making less than $55,000 would still fare better under the House bill, but those earning more than $55,000 appear to benefit more under the President's plan (according to Igor Volsky). The impact on lower-income families may create some difficulties in the House, but that remains to be seen.

The White House appears eager to eliminate any proposals which suggest there's been horse-trading or deals with "special interests." That's probably why the excise tax has been delayed for all workers until 2018, and it is certainly why the special Medicaid deal with Sen. Ben Nelson - the so-called "Cornhusker Compromise" - is gone. Instead there are stronger and fairer subsidies for Medicaid nationwide, and that's a good thing. Specifically, the President's proposal provides uniform Federal support for Medicaid enrollees (the Senate's support levels varied by state) at higher initial levels than the Senate bill.

There are other improvements and other problems too. On the plus side, the President's draft broadens the Medicare Hospital Insurance (HI) tax above the Senate's, so that it applies to unearned income (right now it only applies to wages) above certain income levels. It also increases Community Health Center funding to $11 billion over five years, which is nearly at the House's $12 billion level.

On the minus side, there's still not nearly enough genuine cost containment. Paramount among the missing cost containment measures is the public option - and not a restricted public option, but a robust one. The White House clearly doesn't intend to act on it unless its hand is forced by progressives. Other negatives: The Health Insurance Rate Authority appears to have less genuine regulatory power than it should. And mandates are still too employer-friendly and too tough on individuals.

Can all of these changes be included in reconciliation, which according to Senate tradition must address only issues that affect the Federal deficit? Arguably yes, since each of these changes has an impact on the Federal deficit. While there are no official cost estimates available, it appears that each of them would increase the deficit compared to the Senate bill but decrease it compared to the House bill. That would arguably qualify the proposal as a deficit reduction measure.

The House will no doubt push back on the excise tax and several other points - and it should. But if you believe that this is our only chance to enact health reform, and that a flawed bill can be fixed after it has been passed, then the President's Proposal will look pretty good to you. With the introduction of its proposal, which will probably be used as a discussion draft on Capitol Hill, the White House has clearly increased the likelihood that a bill will be passed this year.

Will This Study Finally End Democrats' Magical Thinking About the 'Cadillac Tax'?

Richard Eskow — Thu, 18 Feb 2010 20:28:39 -0500

It's been a fascinating anthropological exercise to watch the health excise tax concept (the so-called "Cadillac tax") keep its popularity among Democratic and liberals, even as one study after another discredits the assumptions behind it. It's the Democratic equivalent of trickle-down economics - an idea that doesn't seem to die no matter how much it's contradicted by the facts.

The Senate health reform bill places a 40% tax on all employer health benefit costs above a certain threshold. This tax came with a set of assumptions which have been disproven one by one. We were told that the tax would target health plans with especially 'rich' or 'generous' benefits, for example, but a comprehensive analysis showed that wasn't the case. We were told that employers would cut benefits as a result of the tax and give the money saved back to employees as wages, but surveys showed that they plan to do no such thing (more here).

Then we learned that the tax would disproportionately affect plans with lots of older people, or more women, or people who live in higher-cost parts of the country. Who could support an unfair-sounding idea like that? Barack Obama, for one. After months of silence as the Senate eviscerated one of his campaign promises after another, he finally spoke up ... in favor of the tax which he had lambasted during the election.

A lot of bloggers and commentators continue to agree with him, too,as do his top economic advisors. Why? In part, it's because they oppose the idea of using employers to provide health care coverage. I do, too -- but I don't think you fix that problem by reducing people's current coverage, especially in such a discriminatory way. After all, there's no other option available for these employees. It's like trying to solve the problems of public housing by throwing people out into the street.

Proponents also imagine that the employees affected will somehow become "smarter health shoppers," despite the fact that doctors - who are not taxed by the bill - make the decisions that drive health care costs. So there's also a heavy dose of Cato Institute-style free-market ideology in the idea (although its proponents would be shocked at the comparison.)

Finally the unions stepped in and negotiated a compromise deal with the White House. By this time the tax's proponents were insisting this was a merely tax on "union benefits," and that the unions were a "special interest" acting selfishly. Now a new study from UC Berkeley punctures this final Cadillac-tax myth. Research conducted by Ken Jacobs and his colleagues at the Center for Labor Research and Education suggests that the vast majority of employees affected by the tax (at least 80%) would not be in a union.

It looks like the unions did everyone a favor by mitigating the effects of this tax. They've managed to reduce (though not necessarily eliminate) some of its more discriminatory effects. Yes, in some ways their negotiations would benefit union members slightly more, but only temporarily. And most of the people who benefit by the concessions they've won are not in unions.

The unions managed to raise the tax's thresholds, and they got agreement in principle to adjusting the threshold for age, gender, and residence in 17 high-cost states. Yet major problems remain: The increase in threshold levels is less than one year's medical inflation. There's no adjustment for active workers over 55, who are an especially costly group. The potential adjustments for state and gender haven't been spelled out yet, but political experience raises doubts about whether those adjustments will fully account for cost differences.

The tax's proponents have embraced the CBO's conclusion that it will raise $149 billion in revenue over ten years, mostly by taxing those extra wages workers will supposedly get (but employers say they don't plan to give). Fact is, you can't collect taxes on wages that aren't paid - and if benefits are cut back, which is likely, you can't collect taxes on people's lack of health care coverage, either.

Jacobs et al. have other reasons to doubt the CBO's figure, too. They believe that the total number of employees affected by the plan is less than that the CBO projected. That, plus a lower estimated per-employee revenue figure, gives them a top number of $90 billion even without the union-won agreements.

So here's the likeliest scenario under the "Cadillac tax": A number of employees, mostly non-union, will find that their health benefits are either being taxed or (as is more likely) cut back. Their out-of-pocket costs (copayments and deductibles) will be raised, leading them to see the doctor less often. And their overall health costs may stay the same or even go up!

Oh ... and one more thing about the tax: The public hates it. Yet despite all that, if a health reform bill passes this year Democrats are expected to keep the Cadillac tax in it.

Why isn't this idea dead? Why doesn't somebody put it out of our misery? There are four reasons: The first nobody thinks the Senate can be talked out of it. The second is that it's one of the few remaining measures in the bill that even looks like cost containment, even though it isn't, and Dems want to be able to say they're cutting costs. The third is that the House's alternative is to tax high earners, and for whatever reason some Democrats are reluctant to do that.

The last reason is the most potent of all: Zombie ideas like the Cadillac tax and trickle-down economics are hard to kill. If they're "intuitive" - that is, if they sound good to you the first time you hear them - then you fall in love with them. And if the idea you love one day leaves millions of employees without the coverage they need? Well, then I guess it's like the old saying goes: Love means never having to say you're sorry.

Who Benefits from the Proposed Amendment to the Senate Excise Tax on Employer Health Premiums?

Isaiah J. Poole — Thu, 18 Feb 2010 10:15:40 -0500

The Senate health reform bill passed on December 24, 2009, contained an excise tax on high-cost employer health insurance plans; in mid-January 2010 the White House and union leaders negotiated a proposed amendment to the Senate excise tax provision. Several recent studies have evaluated the effectiveness of the tax as a revenue source and cost-containment measure. This report focuses on how the impact of the tax as passed by the Senate and the proposed amendment would differ for union members and workers not covered by a collective bargaining agreement.

While the potential effect on union plans is significant, union members are a relatively small fraction of the total population that would ultimately be affected by the tax, under either the Senate bill (December 2009) or the proposed amendment (January 2010). Key findings:

* Our analysis shows that workers in union firms would be less likely than those in non-union firms to be affected by the tax in the initial years. Workers in union firms would be more likely to be affected compared to their non-union counterparts in the later years, beginning in 2019 under the Senate-passed bill and in 2024 under the proposed amendment.
* The vast majority of employees affected by the excise tax are not covered by a union contract. This is true for both the Senate bill and the proposed amendment. Because many more workers are in non-union plans, fully 80 percent of the workers whose plans would be subject to the excise tax in 2019 under the Senate bill are not covered by collective bargaining agreements. Under the proposed amendment, the amount is slightly higher at 83 percent.
• We project that excise tax revenues will be reduced $41 billion under the White House-union leaders’ amendment. Of that, 71 percent would accrue to employees who are not covered by a union contract.

Will the 'Don't-Blame-Me' Democrats Take Responsibility and Fix Health Reform?

Richard Eskow — Wed, 20 Jan 2010 15:16:45 -0500

It hurts to lose a Senate seat but, hey - setbacks happen in politics. What's really discouraging is the sight of Democrats, from the White House on down, refusing to accept responsibility for their own part in this loss. That, more than the loss itself, is reason for grave concern about health reform - and the party's future.

Aren't people who have participated in a failure supposed to look at their part in the problem, then step up and take responsibility for it? Watching the Democrats, those thoughts feel like relics from an archaic age. In old Britain, chivalric values required a Lady or Gentleman who let down their side to go into their study with a pistol and "do the right thing." Not these folks: They're too busy taking pot shots at each other.

It is, as Daffy Duck might observe, "an exathperatin' development."

There's plenty of blame to go around. Nate Silver's conclusions about what went wrong are smart and incisive. His back-of-the-envelope appraisal suggests that the seat would have remained Democratic if not for either one of two factors: Martha Coakley's terrible campaign, and a national environment that's turned toxic for Democrats. That means that the Coakley campaign and those responsible for the national environment are (i.e. the Party leadership) are both culpable.

Forget the Coakley people for now, since they've had their shot: What are party leaders saying? Everybody's grandstanding, pushing their own agendas. Evan Bayh, for example, insists the problem is that Democrats haven't followed his centrist agenda. And let's review Joe Lieberman's recent comments ... Ah, let's not. The guy already gets too much press.

Both Lieberman and Bayh are wrong, anyway. Here are the first results from after-vote polling in Massachusetts: By a 3 to 2 margin, Obama voters who voted for Brown thought that Obama's reform bill "doesn't go far enough." And those Obama voters who didn't bother voting felt that way by a 6 to 1 margin. 82% of Obama voters who went for Brown (and 86% of those who stayed home) support a public option. And 57% of Brown voters said that Obama is "not delivering enough" on change.

Are you listening, Democrats? Or do the voices of the Lieberman/Bayh do-nothing caucus ring louder in your ears? We hear what we want to hear, after all. Case in point: Before the first vote was even cast, Rahm Emanuel was already blaming Coakley - and Coakley alone - for the loss of the seat. And David Axelrod was insisting that the unpopularity of the health reform bill was solely due the "caricature" its opponents had painted. But shouldn't this be a time to review its content, too? Besides, who's responsible for messaging around there?

Bill Scher asks a logical question: How could Massachusetts voters who like their own reform (58% are in favor) oppose a national health initiative that looks so similar? One answer is clear from the polling: 61% believe the government can't afford to pay for it, even though reform could reduce the deficit. Another sign comes from the same poll that showed 58% support: People who have been directly affected by the law like it less.

The unpopularity of national reform in Massachusetts wouldn't have been a surprise if Democrats had been more willing to look at the data there: While a whopping 79% of Massachusetts residents wanted to keep their reform, according to a Boston Globe/Harvard School of Public Health poll from last September, they "were nearly evenly split on whether Massachusetts could afford to continue with the law." Why? Because that state's reform hasn't done enough to contain costs - and neither would the President's. That poll was an overlooked warning sign.

Obama's let-Congress-do-it process also hurt. It cast a spotlight on the Senate, giving the public a front-row seat as concession after concession was made to the insurance industry. Even if the end result resembles Massachusetts', the unseemly spectacle tainted it - and its architects.

As Massachusetts voters cried out for meaningful cost containment, the White House decided to emphasize the "Cadillac tax" as its solution. But that tax unfairly targets people based on demographics and won't contain costs. (More info here.) And polls show that it's wildly unpopular. So after remaining passive while the popular public option died, the Administration finally weighed in - by pushing an ineffective and essentially indiscriminate tax based on widely-challenged, right-leaning economic theory.

And Dems seem to have forgotten that Massachusetts is more liberal than the country overall. 58% support there could translate to much less support nationwide. Even in that progressive state, a majority of people want reform improved - and that's with no organized resistance from the Right! Replicate that law in Red States, with Republicans in full revolt and tea-partiers parading in the streets, and you could be facing disaster. Throw in a regressive middle-class tax and the public perception that special interests drove the process, and the picture gets downright ugly.

Sadly, there's no sign that Democratic leaders are paying attention. Sure, they can pass the Senate bill as is, but that could hurt them - unless they immediately pass an amendment which creates a public option. The reconciliation process would be entirely appropriate, since a public option would decrease the Federal deficit. They could pass some genuine cost-containment measures that way, too, and jettison the neo-right-wing rain dance that is the Cadillac tax.

We only can hope that Democrats eventually learn from this experience, that they'll stop placing blame and start taking responsibility. There's a word for that:

Leadership.

How Good Is the White House Deal With Labor Over the "Cadillac Tax"?

Richard Eskow — Tue, 19 Jan 2010 13:03:43 -0500

Labor leaders met with the White House last week to hammer out a deal on the health excise tax. Depending on the outcome of today's Senate race in Massachusetts, that deal is likely to become law. So how good is it? Here's an overview:

The ceiling - the point after which benefits become taxed - was raised from $23,000 to $24,000 for family plans and from $8,500 to $8,900 for individual plans. That's negligible. It's an increase of less than 5%, even though health premiums go up much more than that every year. And the tax's growth rate is still pegged to the general -- and much lower -- rate of inflation, rather than the rate at which health insurance premiums are increasing. That will cause increasing harm as years go by.

Other concessions are potentially more significant. Depending on how they're calculated (details are still being worked out), adjusting the tax to account for the age and gender mix of plan members could reduce much of the tax's most discriminatory effects. And it's a real gain that dental and vision plans were exempted.

It's very unfortunate that regional differences weren't taken into effect, however. As always, the pro-tax ideologues at the table refused to recognize that employers and patients don't control these differences. As pointed out in the New England Journal of Medicine, doctors do. Medicare costs $2,500 more per person in East Long Island than it does in San Francisco, for example, and that's not because Long Island is "Cadillac country." Sadly, people in some parts of the country will continue to be penalized unfairly for forces beyond their control – including higher costs of living in more urban areas.

What about the five-year exemption for union plans? Did the unions "sell out" non-unionized working Americans? On balance, they won a number of concessions that will help everyone. Given the position they were put in by the White House, I find it difficult to fault them for obtaining some concessions for their members. And there's logic that says it's fair to give them a negotiating cycle or two before the tax affects their members. That gives them time to try winning back the wages that they've traded off for these benefits in the past under different rules.

The union leaders were going to be criticized, whatever the outcome. If they only won concessions for their members they'd be accused of selling out. If they didn't represent their members at all, they'd probably be voted out. Under the circumstances, I think they did quite well.

Do we finally have a sound health tax policy? No. It's still trickle-down economics, Democratic-style. It's still predicated on the belief that taxing costlier plans will lead to as yet undreamed-of innovations (though it hasn't happened through years of double-digit premium growth), which will then trickle down do other plans and "bend the cost curve" for everybody.

That ain't gonna happen. This is just a health benefit cut masquerading and a tax increase all at once. The union leaders contained the damage, which is good, but the theory behind the tax is still unsound. The only area where discussions might have actually led to a good policy was in the tax's design, perhaps by targeting actual cost drivers and those who control them – the Medical/Industrial Complex, not individual consumers who have neither the power nor the information to overrule the judgments of medical professionals.

In the end, sadly, the Administration allowed economic ideology to win out over fairness and facts.

The Washington Post: Always Fighting the Wrong War

Richard Eskow — Thu, 14 Jan 2010 17:34:40 -0500

The Washington Post has an uncanny knack for being in the wrong place at the wrong time, pushing the wrong policies and making the wrong moves. That's four wrongs in once sentence, and four wrongs don't make a right - unless you're talking about "right"-wing bias. But here's the good news: They've given me an idea that'll make a million bucks.

It's not just their opinions or their reporting that are off-base. It's their timing, too. Two of their latest moves - outsourcing their financial reporting to a wealthy conservative ideologue and endorsing an unpopular policy - could leave the paper struggling to retain its credibility.

The Post's December 31 edition ran a "news article" about the Federal deficit that was actually written by an external organization called the Fiscal Times. They plan to use this outside group for all their financial reporting. The "Fiscal Times" is owned and operated by billionaire Pete Peterson, an antitax conservative ideologically opposed to government spending. And guess what? The "Fiscal Times" reporters found nobody who supports continued overnment spending - although more than forty organizations do - and a whole lot of people who want it cut.

In fairness, those anti-spending types weren't hard to find: They were already on Pete Peterson's Rolodex. He gives money to support most of them. Economist and veteran press watcher Dean Baker said he considered this outsourcing a signal that the Post "is no longer a serious newspaper." (Roger Hickey provides more details on this venture here.)

You'd think the Post would have learned its lesson by now. Back in July it was widely condemned for its plan to hosts "salons" where patrons would pay up to $25,000 for the right to hobnob with government decision-makers and Post staff. That gave the appearance of letting people pay to influence both policy and Post coverage, which is why its own ombudsman called the move "an ethical lapse of monumental proportions."

So, rather than sell influence, the Post simply outsourced an entire segment of its newsroom to an ideologically-driven third party. (Aren't readers entitled to know the terms of that deal?) But look on the bright side: The good news is that you can't pay to influence Peterson's coverage: He doesn't need the money, and he can't
be influenced because he's already made up his mind.

The Post's newsroom has also been accused of downplaying stories that contradicted its editorial support for the invasion of Iraq - support so extreme and jingoistic that the paper was compelled to respond to the backlash in print back in 2003. But they were still at it in 2004, 2006, 2007, and 2008.

Are we seeing the same sad conflation of editorial policy and newsroom behavior on health reform? They've already demonstrated bias in their reporting on this issue, as when the paper incorrectly reported that activist Adam Green supporting the public option couldn't muster a single argument in favor of his position (a statement Green called "ridiculous"). And this week, using its customary combination of incomplete information and bad timing, the paper published an editorial on a subject close to my heart: the so-called Cadillac tax on high cost health plans.

The article is entitled "Will President Obama Defend the 'Cadillac Tax' To Cut Costs." Writers, take note: It's a well-crafted title, especially because all of Washington knew that the President was negotiating to ease the burden of the tax even as the editorial went to press. The use of the word "defend" suggests that it would be "surrender" - that is to say, "weak" - for him to show flexibility. Likewise, their use of the phrase "cut costs" implies that, despite the lack of any supporting data, it is a cost-cutting measure.

The editors rehash the same tired arguments that have been refuted so many times already - that it "reduce the over-consumption of health care," that a 13% difference for older workers is fair (then why does the Senate bill allow insurance companies to charge three times as much for the same people?), yada yada yada. (For more detailed rebuttal of these empty positions, see "Jonathan Chait's Endless Love" and other pieces at No Middle Class Health Tax).

The Post is highly selective and misleading in its use of information here, and not for the first time. It has has allowed George Will to print falsehoods in his editorials, and has often ignored refuting information when presenting its opinions. They've always defended this behavior by saying editorials are opinions, not journalism. But readers don't expect papers to twist the truth anywhere in their pages, and they deserve be told of the many studies (originally 18, now more) contradicting the Post's assertions about the tax.

But what's most striking about this editorial is it's bad timing. Once again, the editors are chasing a train that's already left the station. There's very little disagreement left about the fact that the age and gender impact of the bill would be discriminatory, so why defend them now? Just to give the President another headache? It's certainly not to provide new insights on health policy, because they offer none.

"When life gives you lemons," the old saying goes, "make lemonade." So here's my million-dollar idea: If the Post will outsource financial reporting to an anti-spending conservative, why wouldn't they outsource their health reform reporting to ... insurance companies? I figure I can get ten big insurers on board for a million each - hey, they're spending that much every day on lobbying - and then become the Washington Post's bureau chief for health reform reporting. I think I'll call it "Insurance Times."

But I better act fast: Once this bill gets passed I'll have to find another industry to back my venture, which could change journalism forever. Oh, I forgot - there's always the war. Does anybody have the phone number for Halliburton's CEO?

Special - Today Only! Call To Stop the Health Tax

Richard Eskow — Wed, 13 Jan 2010 12:30:27 -0500

The AFL-CIO has announced that it is coordinating a "National Call-In Blitz" today.. If you call this toll free number - 1-877-3-AFLCIO (1-877-323-5246) - you can "urge your representative to support working families by voting for health care reform that: Does NOT tax our health care benefits; Requires employers to pay their fair share; and Reduces health care costs—the best way to do this is with a public health insurance option."

This is a wise course of action whether you belong to a union or not. The tax is both unfair and badly designed, which means it should be scrapped. And it's likely to affect far more non-union families that union families. It's not just a labor issue - it's a national issue.

Like they say on those radio ads:

Call 1-877-3-AFLCIO.

Again, that's 1-877-3-AFLCIO.

Do it today! This offer may not be repeated.

Jonathan Chait's Endless Love

Richard Eskow — Wed, 13 Jan 2010 06:00:20 -0500

The New Republic's Jonathan Chait has penned an ode to the excise tax on health benefits. He says his "faith in the Cadillac tax remains ardent," even after being led astray by a faulty graph. We hate to dim his ardor, but it's a love gone wrong. You should know in advance that it's not a typical love story, though: there will be some math.

Chait sought to rebut criticisms of the tax from Allan Sloan and Bob Herbert. He's especially angry at Herbert for saying that "the dirty little secret behind this onerous tax is that no one expects many people to pay it." He's so angry, in fact, that he uses an entire paragraph - 98 words - just to object to the phrase "dirty little secret." (That's a word ratio of more than 36:1; we told you there would be math.)

Then he turns his ire on Sloan for doubting that employers would return the money they save (by cutting benefits) to their employees. He takes particular exception to this statement from Sloan: "I ... find it hard to believe that employers can work any harder than they already do to hold down health care costs." Chait responds as follows:

First, Sloan doesn't believe that employers could do any more to hold down health care costs than they already are? What exactly are they doing right now? And even if you think they are doing a lot already, surely scaling back a tax break that encourages lavish spending would encourage them to step up their efforts, right?

Let's start with that "lavish spending" piece. A definitive study published in Health Affairs analyzed actual employer health plans and discovered that benefits design (the allegedly "lavish" part) accounted for less than 4% of the cost difference. Plans won't be taxed because employers are spending lavishly. They'll be taxed because employees are older, sicker, work in the wrong industry, or live in the wrong part of the country. The typical benefits given to people in these categories accounts for 96.3% of what makes a plan costly (or, to use Chait's word, "lavish.")

Singling these people out for demographic reasons isn't a matter of identifying health system abusers: it's discriminatory.

Employers have experienced annual cost increases of 131% over the last ten years (Kaiser Family Foundation), and have increased employee premium contributions by 128% - and that's not counting all the benefit cuts that have increased out of pocket costs for employees. That's how they react to cost increases. Since they can't reduce them, they pass more of them on to their workers.

That's not cost-reduction. It's cost-shifting. That's not "bending the curve." It's passing a bigger portion of the curve on to the middle class. Yes, they'll "step up their efforts" - but their efforts only hit the family pocketbook.

Chait goes on to argue that, despite objections from many analysts and economists, the money saved will be passed on to the affected employees in the form of increased wages. What he doesn't tell you is that in two recent surveys, employers - real employers, not extrapolations from statistics - indicated overwhelmingly that they would not do that. No way, no how. (Mercer, Towers-Perrin)

He then cites "a shelf of studies" on the wage/benefit connection, and quotes at length from Austin Frakt's review of the literature . (Frakt actually only lists eight, which is a pretty short shelf, and two are from one source, Jonathan Gruber.) Frakt quotes two researchers (Baicker and Chandra) as saying that a 10% increase in health premiums reduces the likelihood of being employed by 1.2%, reduces hours worked by 2.4%, and has other effects.

Frakt goes on to say that "we don't have to take just (their) word for it," naming seven more studies on wages and price (plus an aggregation of all of them). But the other studies don't confirm Baicker and Chandra! They just indicate that there is a relationship between wages and health care costs - a fact which few deny.

Furthermore, I did what Chait presumably did not do, and actually read their paper. (Frakt may not have read it either; he only quotes the publicly-available abstract. I, sparing no expense for the public good, sprang five bucks for the whole thing.) The authors used an interesting but unorthodox methodology involving medical malpractice rates - but their malpractice database excluded dentists, and dental care would be disproportionately affected by the excise tax.

Assuming their methodology is essentially sound, however, it's worth noting that the authors found their correlation to be especially strong in manufacturing, a shrinking industry. And they also found that much of wage/benefit shifting occurred with married workers who already had health coverage. We could debate the merits of this intriguing study endlessly, except for the fact that ...

... it's all moot where the excise tax is concerned. The excise tax is not designed to find wasteful or excessive spending. It's just designed to reduce what health insurance spends. Heck, you could reduce that to zero tomorrow. Just outlaw health insurance! The remaining costs would be covered by people out of their own pockets - to the extent they could afford care.

That's what the excise tax does: it shifts cost back to individuals. So if Baicker and Chandra are right, some employees will work 2.4% more hours. But that income will be taxed. Instead of receiving a dollar's worth of coverage, they'll work to earn that $1 and only have seventy cents or so left after taxes. That's a net loss of roughly 30%, and they'll have to work more hours to get it.

Such a deal.

And the excise tax will target only a tiny part of the overall cost curve. We need reform that goes where the big dollars are - areas like overtreatment, chronic disease, and hospital care - not more marginal tinkering at the expense of the American middle class.

I'm glad somebody's feeling "ardent' about this tax, since I noted yesterday that most of its other supporters aren't feeling the earth move. But with the impact this tax is going to have, it's worth asking: What's love got to do with it?

A Tax Even Its Defenders Can't Love

Richard Eskow — Mon, 11 Jan 2010 23:12:39 -0500

People are saying that the so-called Cadillac tax "might fall flat" and "has real problems." And those are its defenders. I can't remember any new policy in recent history whose own advocates had so many complaints with its design.

Not that we're "Ezra Klein Watch" around here, but Ezra's become the locus and the spokesman for the pro-tax contingent. He's mounted a yeoman's defense, using a broad (if what occasionally seems to be shifting) array of arguments. Not that all of his points are without merit, by any means. He and other tax proponents have raised compelling arguments that merit serious discussion. Unfortunately, they don't have much to do with this tax.

The debate shifted after studies (by Gabel et al. and the Milliman actuarial firm) showed that "richness of benefits" is not what would place most health plans into the tax. It mainly targets benefits for older, sicker people, those than live in the wrong part of the country, or those in the wrong industry. Then we learned that yes, employers will cut benefits if the tax is passed, but no, workers won't get the money their employers save as wages. Two consulting firms (Towers-Perrin and Mercer) confirmed overwhelmingly that companies intended to keep the money instead.

Sure, reducing overall health costs would free up more money for wages in the future. But nobody's explained how this tax would reduce overall costs. All we know is that these workers, whose coverage would be cut now, would get nothing in return. Meanwhile there would be a lot of unfair suffering - suffering to which the tax's defenders seem uncharacteristically indifferent. "No one should be under the illusion that this tax will not cause some pain," writes Ezra. "Everything has losers."

So if your coverage gets cut because your co-workers are too old or too sick, buck up: Everything has losers.

Ezra acknowledged the problems during an online exchange we had recently. "My argument is not that the excise tax is without problems, or sure to work," he said then, "(a)nd I don't deny that (it) might fall flat." But he's still pushing for it.

"The excise tax is a tax that's meant to change behavior," he writes, "much like a cigarette tax." But a cigarette tax taxes cigarettes. This tax doesn't target inappropriate or excessive use of health services. It taxes everything. It's like cutting working families' grocery budget with the rationale that "some of them might buy cigarettes with that money." It's a blunt instrument where we need a scalpel.

A "cigarette tax" approach to benefits would require a national discussion of "basic" vs. "optional" coverage - ie, is vision coverage obsolete? - or some other creative ideas. Maybe we should tax services that fall outside of accepted medical practice standards, or tax providers if they deviate too often from best practices. (I'm not endorsing these ideas, merely listing some alternatives.)

Ezra also voices an argument I've heard privately from some health economists: "(A)ll employer-based insurance, right now, is exempt from taxes -- a regressive and cost-increasing decision that this barely begins to redress.This is a tax that should already exist, and it should exist on every dollar of health benefits, not just every dollar above $23,000."

It's a legitimate point. Our employer-based system is an historical anomaly, one that treats some forms of employee compensation differently from others. That's inherently unfair. But the wage levels we have today are the product of this system. They've grown up together with these benefits, like tangled vines. If we were to make a national decision to tax health coverage - an idea that was mocked when Republicans suggested it - we would need to have a well-thought-out transition plan. Otherwise we'd have an enormous de facto wage cut for our already-beleaguered middle class.

If we're not willing or able to do that for the country as a whole, why select a portion of the insured workforce - on a discriminatory basis, no less - and do it to them?

Paul Krugman endorsed the tax - while, like other backers, simultaneously criticizing it: "A flat dollar limit to tax deductibility has real problems. At the very least, the limit should reflect the same factors insurers will be allowed to take into account in setting premiums: age and region." He's right: The Senate bill allows insurers to charge up to three times as much for older people's coverage, but raises the tax's trigger point by only 13% for workers over 55.

Prof. Krugman insisted that "the final bill should address the criticisms." Amen. But that would need to go beyond Prof. Krugman's proposed modifications to the tax's design. While they would relieve the most
egregious discriminatory effects of the bill, they still wouldn't address the fundamental problem: This tax doesn't target excessive care.

That gets us to the last line of defense: that this tax, however flawed, is a first step toward genuine cost containment. But insurers have always responded to increased expense by shifting costs back to patients - not by getting smarter. Why does anyone think a badly designed tax causing indiscriminate pain will evolve into something better? The most likely outcome is a backlash that makes genuine cost containment impossible for a generation.

There are good proposals, there are bad proposals, and there is the proposal on the table today. The tax's defenders have come up with some interesting ideas - or at least the germ of some interesting ideas. But those ideas aren't the table: this tax is.

It's encouraging to hear the President say he wants to "make this work for working families." It's time for some new thinking about an idea that's already grown old.

The 15% Solution

Richard Eskow — Sun, 10 Jan 2010 23:41:05 -0500

A blogger contact has told me of a new argument in favor of the health excise tax: Since the tax will be imposed on insurers, the Senate's limit of 15% for insurance company profit and overhead will prevent the cost from being passed on to consumers. There are a number of reasons why that argument won't work:

First, I'm in a minority among policy analysts when it comes to the Senate's requirement that insurers maintain an 85% loss ratio (meaning that 85 cents of every premium dollar collected be spent on medical care.) I just don't think that limit will be very effective - unless the government imposes very sophisticated monitoring and oversight of insurance companies. And I don't see that happening without serious lobbying to strengthen oversight mechanisms under the bill.

Why am I a skeptic? Maybe because I worked in the industry. When I was asked about the 85% rule by David Dayen of Firedoglake, I was able to come up with five ways to get around the rule pretty quickly. For example, they could adjust their reporting by allocating more of their corporate administrative costs to regions that are performing well. Or they could reclassify some of their administrative cost as "medical" in nature, which I've seen happen in workers' compensation. And adjustments could be made to what is called "IBNR" - incurred but not reported medical claims - to alter the apparent loss ratio.

At the most cynical extreme, insurers could simply pay their doctors or hospitals more. So I'm not a big believer in the 85% rule, unless its accompanied by aggressive oversight.

But even if the rule takes effect, it won't really change the impact of the health excise tax, for two reasons. First, the tax will affect roughly one in five workers in its first few years. Even if those workers' coverage is costlier than average, an across-the-board decrease in their costs wouldn't affect the 85% figure by more than a couple of points.

But even that doesn't really matter. As its supporters keep reminding us, the tax isn't designed to be paid. It's designed to cut benefits so that health plans fall below the tax's trigger levels ($23,000 family/$8,500 individual). So what will happen if the tax passes? A number of workers who fall into higher-cost plans (mostly for demographic reasons they and their employers can't control) will have their benefits cut. They'll pay more out of pocket for their medical care, or they'll forego receiving medical treatment. Either way the tax will not be levied.

And if the tax isn't levied, the 85% rule doesn't matter. The harm has already been done, either to the family budget or the family's health.

Besides, do we really think that a tax that cuts into insurance company profits would have passed this easily?