Dear Joe and David,
I agree with both of you. Another unforseen or unintended negative consequence of taxing the "Cadillac plans" is to provide an incentive for employers of fairly small groups of employees to try to avoid hiring or not retain employees who are known to be (or have family members who are) high risk.
In an attempt at a defense of my colleagues in my discipline, I think one of the problems that the economics profession is tending to ignore is that even if one espouses the position that all employment-based health insurance premiums should be taxable income, this does not have the same consequences as choosing to tax only more expensive plans, which was a scheme hatched as a "compromise" between not taxing and taxing all such benefits.
Happy New Year to All,
Shirley
----- Original Message -----
From: Joe White <[log in to unmask]>
To: [log in to unmask]
Sent: Wed, 30 Dec 2009 16:30:26 -0500 (EST)
Subject: Re: Op-Ed Columnist - A Less Than Honest Policy - NYTimes.com
Dear Colleagues:
The following two links show what Tim Jost and I think of the "cadillac tax"
as well:
http://healthaffairs.org/blog/2009/12/03/cadillacs-or-ambulances-the-senate-
tax-on-excessive-benefits/
http://www.rollcall.com/news/41838-1.html
Jon Gruber had a piece in the Post endorsing it on the 28th.
http://www.washingtonpost.com/wp-dyn/content/article/2009/12/27/AR2009122701
714.html It is quite revealing - he thinks the health policy community
strongly supports it, because the part of the community he recognizes as
legitimate - American economists - strongly supports it. Political
scientists, actual insurance experts, etc. don't count. I drafted the
following - not sure what I'll do with it - that expresses the truly
remarkable aspects of Jon's argument.
The Real Case for the "Cadillac" Tax:
Employers Should Not Sponsor Health Insurance
Joe White
<mailto:[log in to unmask]> [log in to unmask]
December 29, 2009
Jonathan Gruber has done the public a favor in his December 27 Washington
Post article that endorses a special tax on high-cost, "Cadillac" health
plans.
He makes clear that he and other health economists simply dislike the tax
exclusion for employer-sponsored insurance benefits, regardless of the
effects of any policy to alter it. The logical implication of his argument
is that employers should not sponsor insurance at all.
He begins by saying that reducing a tax expenditure does not constitute a
tax increase. Now, whenever Congress reduces a tax expenditure, that raises
tax revenues. That has the economic effect of a tax increase and has always
counted as a tax increase under budget rules. Although he endorses the
provision because it would raise government revenues, he argues that it
isn't really a tax because it simply changes some peoples' taxes from being
too low to being the right level. Apparently he has invented a new budget
accounting category: tax revenue increases that aren't tax increases. I'd
call it, "tax increases that some economists like, so they think should be
viewed differently than increases they dislike."
This could be viewed as remarkably self-regarding, except that Gruber
apparently only thinks health economists' opinions should count anyway.
Thus early in his article he describes the excise tax as "almost universally
recommended by health policy experts." It would be more accurate to say
that the tax is broadly praised by health economists, but experts with other
backgrounds disagree. For example, many insurance experts, such as those
quoted by Allen Sloan in his December 18th article in the Post, think the
economists' enthusiasm ignores evident facts about how the tax would work.
Gruber bows to this evidence a bit when he admits that, "many claim that
this is a tax not on excessively generous insurance plans but on those who
happen to have high insurance costs." But he then ignores the evidence when
he argues that it is unfair for taxpayers to provide twice as large a tax
benefit to a family whose insurance costs $13,000 than to a family whose
insurance costs $26,000.
This is a remarkable position for a person who has advocated consistently
that (a) all Americans should have insurance; (b) coverage should be
subsidized according to ability to pay; and (c) coverage should be
sufficient to cover need.
If insurance costs more for one family than for another family with the same
income, and that is because the first family has greater need, Professor
Gruber is quite willing to say the two families should pay the same price.
That's called community rating, and he endorses it strongly. If community
rated insurance has an income-related subsidy, then the net subsidy for
health care costs is much greater for the family with higher costs. That is
what Gruber has fought for in Massachusetts and in the current health care
reform effort.
So Professor Gruber strongly endorses a system in which one family with
costs of $26,000 receives a much greater subsidy, in practice, than the
subsidy received by another family, with the same income, but costs of only
$13,000 - so long as both families get their insurance through the
"exchange." This difference in subsidies is the whole point of reform: to
make health care affordable regardless of income or illness.
But, as soon as insurance is provided through employers' books, and the
subsidy therefore takes the form of the tax deductibility of premiums --
poof! Suddenly it is unfair. "Taxpayers are literally sending twice as
much money to the second firm," which has the employees with higher costs,
and Gruber thinks this is such a bad tax policy that changing it shouldn't
even count as a tax increase!
How can anyone take such an inconsistent position, in policy terms? There
are three possibilities.
First, Professor Gruber simply has not accepted the mounting evidence about
why costs of employer-based plans differ, so can rationalize ignoring it.
Second, he objects to the tax preference so much that he can't see that it
is just the way insurance is subsidized when it is provided through
employers, rather than through the exchange. More expensive groups of
employees get a bigger subsidy than less expensive groups, just as, in the
exchanges, more expensive families would get bigger subsidies than less
expensive families.
Third, he appears to believe that workers will just get the money as wages
anyway. Even if that were true, they would still lose the government
subsidy through the tax code. So workers in a less fortunate group would be
worse off than workers in healthier groups - which is precisely what health
care reform should be designed to avoid.
The effect of the "Cadillac tax" will be to punish employers for having less
healthy workers, or workers for joining companies with less healthy
employees. It only makes sense if your long-range goal is to get employers
to stop providing insurance - or, to ensure that only employers with
particularly healthy employees provide insurance directly.
This is a situation where a comparative perspective is relevant. In the
draft, I compare two of Gruber's own views. But lets do this
cross-nationally.
If you have a country with various sickness funds - like Germany - and some
companies have healthier pools than others, then the sickness funds with
healthier pools have to make transfers to the funds with sicker pools. The
transfers don't eliminate all differences, but ameliorate them. If you have
a country with alternative kinds of pools like Japan, so healthier and
wealthier people are in one type of insurance (big companies) and, on
average, less healthy or poorer people in others (the national fund for
workers, or community funds), there are some transfers among funds too, but
the government also provides differential subsidies to the funds.
In the U.S., we have companies that buy insurance or self-insure. They
and/or their employees (take your pick how you divide it up) basically spend
their own money but, to encourage the pooling advantages of grouping by
employer, the government subsidizes the insurance somewhat with a tax break.
Some pools have greater medical expense risks than other pools, so either
their premiums (if they buy insurance) or their incurred costs (if they self
insure) are higher. According to the available data, the variations in
costs across employers depend far more on the pools than on the benefits.
The U.S. does not have the risk-experience transfers that some countries
have. But it DOES have a modest functional equivalent, in that the tax code
gives a larger subsidy to less healthy (so more expensive) groups, and a
smaller subsidy to more healthy (so less expensive) groups. The tax subsidy
does not come close to eliminating differences, but ameliorates them.
That's what Gruber is criticizing. The inequities due to unequal risks are
what the excise tax would purposefully worsen. This is entirely contrary to
the goals of reform. But American economists don't like the tax subsidy in
principle, and that is part of a more general distaste among our economists
for tax preferences of any sort - which are viewed as a "distortion" in
principle. So Gruber's view is deeply entrenched in the theology of
American health economics. Apparently, contrary facts just lead him to make
bizarre excuses for the policy - to the point of saying a change in tax law
that increases revenue by taking more from some people isn't a tax increase!
Cheers,
Joe
From: Anglo-American Health Policy Network [mailto:[log in to unmask]] On
Behalf Of David Wilsford
Sent: Wednesday, December 30, 2009 1:38 PM
To: [log in to unmask]
Subject: Op-Ed Columnist - A Less Than Honest Policy - NYTimes.com
Dear AAHPN colleagues
Well, now that the Christian Christmas is over, time for Scrooge to be
back - and in the nick of time to spoil New Years too, if you are
passionately interested in American health care reform efforts.
Much brouhaha accompanied the Senate's passing of Harry Reid's "ugly"
bill on the Christmas Eve. (The adjective "ugly" comes from all sorts of
commentators.)
Little noticed - until perhaps this morning - is the middle class gouge
that is in the making, if the bill passes with the so-called Cadillac tax on
generous plans. It is little wonder that labor unions are against it.
Why is this important? Rather than for me to summarize it, better to
read the scathing review of it in this morning's NYT by columnist Bob
Herbert, longtime center-left mainstay of that paper's op-ed page. (See
link below.)
For such a scathing critique to come from him, well, trouble is clearly
brewing in Oz.
He closes it with this passage:
"The tax on health benefits is being sold to the public dishonestly as
something that will affect only the rich, and it makes a mockery of
President Obama's repeated pledge that if you like the health coverage you
have now, you can keep it.
"Those who believe this is a good idea should at least have the courage
to be straight about it with the American people."
It also catches my attention that more than a few Obama partisans that
are friends of mine (yep, they hold their noses when associating with me)
and have administraion posts are near-to-alarm at the electoral results that
stand to come when a so-called Cadillac tax kicks in. Moreover, more than
one have pointed out to me, when subsidies to buy insurance end up not
covering the premiums required to abide by the mandate, all hell will be to
pay by these voters, as well.
The corridors of power in the nether regions of this administration are
not as jubilant as Harry Reid, the Senate Democratic caucus and the White
House are.
Yours for a good New Year, in spite of my curmudgeonly views,
David
http://www.nytimes.com/2009/12/29/opinion/29herbert.html?hp
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