The Democrats' Death Wish: Taxing Cadillac Health Care Plans

If conservative Democrats succeed in taxing high end health care policies, the entire party will suffer, and for good reason.

Supposedly, taxing these plans will help drive down overall health care costs as well as raise needed revenue for extending health care to all.

But the logic behind the cost cutting claims is seriously flawed. In fact, the Blue Dog effort has eerie parallels to the way in which free-market ideology helped crash the financial system.

As we've learned the hard way, financial markets failed miserably after deregulation. When we let those markets run wild, key institutions became too big to fail and freely took on enormous risks with other people's money. We got casino finance. The net result was enormous wealth for Wall Street elites and a collapsed economy for the rest of us. Because finance is deeply intertwined with the rest of the economy, we bailed out the financial sector in an emergency effort to prevent the whole ship from sinking. Without big government intervention, the so-called free markets would have taken us into the Great Depression II.

Free market ideology simply can't account for this catastrophe no matter how hard the ideologues try to blame government interference.

Free market ideology also can't account for the rise in health care costs. They claim it's because we, as consumers, don't care about cost because we have insurance. Therefore, we have no motivation to use less health care.

But we don't -- and can't -- shop for health care like we do for haircuts. In fact, as consumers we have almost no bearing on health care prices. One of the main reasons is that 20 percent of the very sick among us account for about 80 percent of the health care costs. There's nothing the 80 percent who are less ill can do about it as consumers. (This is also why health insurance companies spend hundreds of millions of dollars trying to avoid insuring sick people.) Meanwhile, the medical industrial complex has developed a myriad of ways to make sure prices and profits go up and up -- from cornering regional insurance markets to monopoly drug pricing to for-profit medical providers.

I don't know about you, but when I'm healthy I don't spend my free time interviewing infectious disease specialists just on the off chance that I get a drug-resistant bug. And if I did have the bad luck to get seriously ill, I wouldn't be in a good position to take the time to independently verify my doctor's advice beyond the proverbial second opinion. If a test is recommended and sounds at least plausibly useful, I'll take it. If I'm not getting better and feel like utter hell, I may even ask for more tests, and pray my insurance covers them.

If you tax my plan and drive up my premiums and co-pays I will not change my behavior except marginally. But my employer might decide to drop certain kinds of coverage because of the tax. The net result is that when I need care it will cost me more. It will not drive down the overall costs of health care in a meaningful way.

Not only is the free-market ideology totally inappropriate for health care but the attack on "Cadillac" plans is pernicious. It sends a terrible message that somehow these plans are bad, and that cheap plans that barely pay for anything are terrific. But what exactly is a high end plan? It's a plan that we all should have: full prevention from health care disasters, low premiums, low deductibles, and the range of serves that we need: eye, dental, mental health and nursing home coverage, etc. This is radical? Bismarck did most of it more than 100 years ago!

Ah, but Herr Bismarck didn't have to find a way to keep alive the wasteful private health insurance industry. He didn't have to fight back against thousands of lobbyists trying to protect every dime of profit in the health care sector. A Cadillac plan would cost a whole lot less if we weren't also paying for unneeded administration, underwriting, excessive profits and astronomical executive salaries. A single-payer system would move us much closer to having Cadillac plans for all, but that's not "realistic" we are told. (It's interesting to note that the AFL-CIO endorsed "Medicare for All" even though most of its members have private health care coverage.)

What's really behind this misplaced free-market debate is the same thing that was behind the misbegotten financial deregulatory debate: money. The Blue Dogs are all about protecting the private sector and its profits, even when the private sector has proven itself to be inefficient and downright harmful. And the medical industry is contributing heavily to their campaigns. The free-market ideology provides cover for making sure the barons of health care continue to profit.

Finally, it's hard not to view the Blue Dog attack on Cadillac plans as a clever way also to avoid taxing Wall Street. Much is being made of how taxing high end plans will put the screws to the Goldman Sachs and JP Morgan Chase elites who have expensive coverage. But those taxes amount to pocket change. Because of our bailouts, Goldman Sachs ran up record profits last quarter. Imagine that -- record profits in the worst financial year since the Great Depression! I think they'll have no trouble paying an excise tax on their health care. What they don't want is to pay for an excise tax on their outrageous pay and bonus packages and windfall profits. And the Blue Dogs are making sure that doesn't happen.

The conservative Democrats came up with a rule which makes absolutely no sense unless you are in bed with bankers: all new health care revenues must be generated from within the health care system. That's ludicrous since the taxpayer already finances more than 45 percent of all health care costs from general revenues. The Blue Dogs are simply trying to keep the debate away from doing the obvious: taxing the super-wealthy to pay for needed health care. They'd rather tax union members.

The net result is likely to be a hodge-podge bill that no one enthusiastically supports. It will be cruel to immigrants. It will make it harder for the poor to secure abortions. And almost certainly it will fail to challenge the private insurance industry with a public option. It might still be worth it all if it covers the uninsured and provides true portability as we move from job to job, or if we lose our job. But the price the Blue Dogs are asking to reach such a compromise is infuriatingly high--and all for no good reason.

It may not be too late for Democrats to generate some real populist enthusiasm. All they would need to do is show a willingness to finance health care reform from surcharges on the super-rich and Wall Street. Most Americans could see the justice of asking those with so much, and those who are living off of our $13 trillion in taxpayer support, to contribute back to the common good instead of just taking from it. But if, instead, the bill slaps a tax on decent union health care plans, it could be the last straw. The backlash would threaten not only the Blue Dogs but the progressive Democrats as well.

By reforming health care in this absurd way, the Blue Dogs might manage a perverse health care miracle: bringing the Republicans back from the dead.

Les Leopold is the author of The Looting of America: How Wall Street's Game of Fantasy Finance destroyed our Jobs, Pensions and Prosperity, and What We Can Do About It, Chelsea Green Publishing, June 2009.

 

Follow Les Leopold on Twitter: www.twitter.com/les_leopold

Comments

[RefreshingTaste]

Union health care plans ARE Cadillac Plans, WHOOPS!!!!!!!!!!!!!!

[jsayler]

I don't see where the free market has entered into the equation thus far. Clearly, the industry has enjoyed nearly monopoly rights to captive customers who have few options in choosing "providers." A lack of anti-trust regulation has prohibited a free-market scenerio from being exhibited. There are no insurance companies that can say that they don't have excessive compensation of their executives with salaries, stock options, golden parachutes and other luxuries thrown in. All the while that the companies are gouging our pocketbooks to increase their profits and pay schedules, hey are denying coverage to "customers" and hiking up premiums, deductibles and co-pays.

How can this be free market anything????

[Startreklivz]

It's a terrible idea: the government will fine you if you don't have insurance, and tax you if you do.

It's "heads the government wins, tails the taxpayer loses."

Meanwhile, insurance executives are popping champagn corks: a market where the consumer MUST by, but the insurance company can still set the prices (there's nothing in the bills to stop an insurance provider from charging $10,000/month for coverage if they want to -- for example a pre-existing condition).

[ThePeacemakers]

I think the reasoning is that "cadillac" health care plans are bought by people that can afford them and most likely they can afford to pay more because their cadillac plan is subsidized by the people struggling to pay for regular plans.

But true, there should be a better alternative than making it POSSIBLY cost prohibitive for people to get the best health care available.

Then again, the health care industry is dying (no pun) to get into poverty business by creating debt that people will spend their lives paying off (even when they are no longer sick in some instances).

[PlaceboStudman]

Don't forget the Dems (and Repubs too actually) Death Wish against the good solid American People who happen to be critically or chronically, or worse terminally disabled, but because they have insurance, they just don't matter.

When will anyone stand up and speak for us?

[CrzyRussell]

Probably not...They just want our money...

[PlaceboStudman]

They've got enough of mine. I'm officially performing a boycott of any and all medical services for at least a year. And in my case it isn't even *just* the insurance companies, it's BigPharma who I don't want having my money

[kodon]

One of the arguments used against various reforms is that people don't really pay for healthcare and thus get "too much" since they don't have a sense of the cost. Believe me, even if you have totally free healthcare, not paying for a single service, there is always a cost. Waiting around in the doctor's office, uncomfortable or painful or intrusive procedures, your time. You practically have to beg women to get pap tests and mammograms, and men just don't want to go to the doctor. I sure don't want to be bothered with any of it if I could avoid it, and that's just the benign preventive stuff. Nobody would ever confuse medical care with a spa treatment. (Weekly colonoscopies anyone?)

As for taxing Cadillac plans, isn't good insurance something we should encourage? D'oh!

"Free market" thinking just doesn't work in this context. It does not apply.

[j-md]

Great article. I think people vastly overestimate what a "cadillac plan" is. Like it's having a 24/7 private doctor on call or something. It's really just coverage that wont bankrupt you if you get sick.

Wouldn't a "cadillac plan" that covers preventative care end up saving us money in the long run?

[AJH]

Not really. Preventative care requires a behavior shift just having it available doesn't mean it will get used. Or if it's used the advice will be followed.

And our society isn't very friendly to good health habits. Our parks are designed for kids play needs, we pay for gym memberships for adult excercise needs etc...

A cadillac plan whose services required 7 hours at the free gym a week with a financial scaling penalty for not going to the gym to maintain mandated coverage. Now that might reduce healthcare costs but it would get you kicked out of office.

[Rudderman]

I'm so tired of talking about this my head is spinning. Months ago I suggested we pass health care costs on to Wall Street because, after all, their profits and arrogance make most of us sick.

At any rate, it's seems that any bill without a public option is pointless. If the public option isn't an option then what's the point of this whole exercise? Other than to prove that Washington is so corrupt that nothing of real value to America will ever come out of its own capital.

[DrInsula]

Thank you for writing about this! As Wendell Potter and others have repeatedly explained, the whole concept behind TAXING HEALTH BENEFITS is to drive the market insidiously, but steadily, toward funneling EVERYONE into so-called, "consumer-driven plans," = junk insurance policies with HUGE deductibles, HUGE out-of-pocket costs (euphemistically called "cost sharing!"), and bare-bones coverage. Undoubtedly, this would make it much cheaper for BUSINESSES to insure workers, although the untimate end of a road with individual mandates - employer obligations is the total dismantling of employer-based coverage...There is NO WAY that millions of us NOT getting MRI's, for instance, is ever going to "drive down the cost," of an MRI; we all know this. It will result, however, in fewer and fewer plans covering any appreciable cost for such a procedure.

[Transcendentobserver]

Sorry Leopold: You are dead wrong on this. Inasmuch as elaborate and expensive options are included in a health plan negotiated with employer groups and or/professional associations, the premiums for such benefits are deductible from taxes and thereby subsidized by the nation at large. The standard level of health care services for the vast majority of public programs should be the standard benefit standard for public benefit. Such "cadillac" services while certainly justly available to those who desire them, but subsidized through tax deduction, whether or not tied to reform?? Elimination of such subsidies should be fiscal policy in any event!

[Les Leopold - Huffpost Blogger]

Well one doesn't want to see the word "dead" associated with one's name. But, your debate would not exist if we had single-payer. Instead we argue about a subsidy that has led millions to put off wage increases in order to negotiate health care benefits. We are subsidizing the health care system in hundreds of ways. Why single out that one? Also my main point is that I don't think doing so will bring down health care costs. My secondary point is that there are much fairer ways to raise needed funds to provide health care for all.

[CrzyRussell]

Unfortunately Obama's definition of a "Cadillac plan" in reality is the typical middle class health insurance plan and by far the majority of union negotiated plans.

Mu question is is he ignorant on this? Or does he know but is telling us something different?

Either way it is troubling....

How many people can absorb another tax right now? The residents of CA have already expereinced the biggest tax hike in it's history...

[CrzyRussell]

If you purchase your own insurance it is tax deductible as well....

[droftim]

That's not entirely true. You can only deduct your premiums if you are self-employed. If you are employed by a company that does not offer insurance, and pay for your own insurance, the deduction is limited the portion that exceeds 7.5% of your adjusted gross income.

Employer paid insurance is subsidized by all tax-payers, including those who do not get any allowance for their own.

[DrInsula]

Look, one of MANY problems with this taxation plan is this one, REALLY BIG ONE: the definition of "Cadillac plan," in the Baucus bill has no relation to what the plan covers, or how much the patient's out-of-pocket coasts are. IT IS BASED ON THE TOTAL ANNUAL PREMIUM COST! So, there can be LOTS of reasons that your plan might cost $10,000/yr in premiums, without providing great coverage! For example, you might be 55 years old! Or, heck, you could be 24 years old, with a history of leukemia! For any family, one child with a serious condition would necessarily bump up the premiums for a so-so plan to the monetary definition of "Cadillac plan." PENALIZES OLDER WORKING people, as well as anyone who has already encountered an illness!!! HORRIBLE IDEA.

[sunnybunny]

The problem with health insurance now is it doesn't cover anything unless you get one of these "cadillac" plans you are referring to. You can get a less expensive policy and then you are paying (still a lot) for nothing, unless you get a horrible disease or in an accident, and maybe then too.

[mamalisa38]

I have a "Cadillac" plan through my husband's union and it isn't all that great. They pay less and less each year and the deductible is always going up.

For American's to continue paying billions of dollars a year for obscene salaries, bonuses, perks and profits is unconscionable.

Single payer is the only answer to our health care crisis.

[alibeamish]

Absolutely true!!
It plays on the worst instinct: I have a crappy plan so everyone should have a crappy plan.
If they want to tax health insurance as income then they should do it progressively to everyone.
If they want to tax bankers then make a fair tax system for everyone and tax higher incomes.
Gov't is trying to fragment everyone into little groups get support by this supposed attack on bankers
meanwhile they are still funneling taxpayer's money to banks.

[Robster]

Dems are capable of only thinking in terms of taxes- every problem nail, every solution a hammer.

[Pablo175]

I am confused. Healthcare for all and gold plated healthcare for some? Why should gold plated healthcare get a tax deduction? That alone is an incentive to provide excess coverage.

You need price discovery at the consumer level to modify behavior. These plans are the antithesis of that. How could anyone be infavor of over spending on Healthcare?

[CrzyRussell]

The problem is Obama's number is so low that most people will end up paying the "Cadillac tax"

And who is going to define overspending and too many benefits?

And why where only the fire and police exempted from this? I have the same insurance plan as they do..but I have to pay a tax on it?

So much for not raising the taxes on the middle class.