11/23/2009 05:12 am ET Updated May 25, 2011

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.