Is Truth the Next Casualty in the White House’s Push For the Senate Bill?

December 18, 2009

Many of us admire the wealth of talent on display in the White House, so it’s disappointing when there’s a breakdown in the accuracy or completeness of information being put forward by members of this Administration.

Take Jason Furman, the Deputy Director of the Administration’s National Economic Council. We understand that emotions are running high about the Senate health bill, but Mr. Furman’s recent brief in support of that bill isn’t just rhetorically overheated (although it’s certainly that.) What’s less excusable is the way he overlooks some significant new findings that undercut his argument. He’s entitled to his opinions, and even to his emotions. But it’s his responsibility as an economic advisor to know and report the facts, too, and in this case he’s failing to carry out that part of his job.

Here’s what Mr. Furman said – and didn’t say – in a recent blog post on the White House web site.

He opens with sarcasm – an unfortunate tactical decision when addressing one’s potential allies. “(O)pponents of reform are testing the age old adage that if you only say something enough times you can somehow make it true,” writes Mr. Furman. “Yesterday, we heard a new version of the old, tired refrain that the health reform bills in Congress would raise taxes on the middle class.” Here are the rest of his statements, and the facts that undercut them (as available in data from the Joint Committee on Taxation and several other sources):

Statement: “First, the health insurance reform bill being considered in the Senate does not raise taxes on families making less than $250,000 – in fact it is a substantial net tax cut for American families.”

Fact: In 2019, six years after this bill takes effect, the excise tax will affect one in five taxpayers making $50-$75,000 per year. The average tax impact on people in this income bracket will rise to $1,100 in 2019. Overall, more than 24 million taxpayers (or “tax units”) will be affected by 2019.(1)

The CBO found that the tax would impact 19% of all employees with health insurance by 2016.

Statement: “(T)he excise tax levied on insurance companies for high-premium plans, the so-called ‘Cadillac tax,’ will affect only a small portion of the very highest cost health plans – a total of 3% of premiums in 2013. The vast majority of health plans fall below the thresholds set in the Senate plan and would be completely unaffected by the provision. “

Fact: the Communication Workers of America, using figures provided by the Joint Committee on Taxation, found that 27 percent of single plans and 22 percent of family plans will be affected by the tax in 2019. (Report available in pdf form here.) And a recent Mercer survey (discussed here) found that 19% of all benefit plans – that’s one plan in five – could be affected by the tax in its first year.

Mr. Furman is either unaware of these figures, or – as is more likely – he’s playing a misleading game with numbers. He says that 3% of premiums will be affected, but what he doesn’t say is that this is because only the premium above a certain level is taxed. Here’s the financial reality for working Americans, once the games are set aside: At least one in five employees will be hit with a new tax, and studies show that on average this will add $958 to their benefit costs in 2013 (also from the CWA report). Both the average cost and the number of people affected will keep going up each year.

(And, as an aside, let’s stop using the phrase “Cadillac tax.” Like the phrase “death tax,” it’s a misleading and emotionally charged phrase designed to manipulate people’s perceptions of the issue.)

Statement: “In addition, the Senate plan provides special protections to plans held by workers in high-risk professions – like police and firefighters – as well as by those over 55.”

Fact: Two new papers in the respected journal Health Affairs (summarized here) have concluded that the Senate bill does not do enough to offset these factors, and that people are most likely to be subjected to this tax because of the industry that employs them or the age mix of employees in their plan. According to one of the papers cited(2), only 3.7 percent of the variation of premiums for family plans is determined by a plan’s benefit design.

What does that mean? Health plans don’t usually cost more because they offer extravagant benefits. They cost more because they include people whose medical expense are higher – older workers, chronic disease sufferers, and women. Other important cost drivers include the size of the employer and the part of the country where the employees are located.

Statement: “(F)or the small sub-set of plans that are affected, the primary impact of this provision will be to increase workers’ wages. Getting a pay raise is not what most people would call a tax increase.”

Fact: In a survey of employers conducted by the Towers-Perrin firm (pdf), only 9 percent said they would increase salary or direct compensation if health care reform reduced their benefit costs; 78 percent said they would keep the savings in the business as profit.

Mr. Furman quotes a list of economists who believe that wages will go up if benefits are cut. That’s a theoretical assertion based on multi-year comparisons of wage and benefit trends. But theories are theories and reality is reality. It’s hard to give a theory – especially one that’s based on data from a different economic climate – more credit than real-time, real-life survey results like these.

What’s more, even a small increase in wages – which are taxable – would never offset a similar loss in benefits, which aren’t taxed. Once you add in the much higher deductibles and cost sharing that will result from this tax, people will wind up deep in the hole.

Statement: “Finally, supporters of the status quo are supporters of continuing the hidden tax of $1,000 that the millions of Americans who get insurance through their job or buy it on their own are already paying each year to cover the costs of caring for those without insurance.”

Fact: None of the groups or experts opposing this tax are supporting the “status quo.” This is the kind of rhetorical gamesmanship that has become all too common in Washington lately. Opponents of this tax simply suggest that it be removed, as is proposed in the Sanders-Franken-Brown Amendment, and replaced with the more rational and progressive taxation policy in the House’s bill.
_____________________
Peter Orszag committed a similar, if less egregious sleight-of-hand on Monday when he cited the excise tax as one of four “fiscally responsible” measures likely to contain costs – ignoring the new Health Affairs report which challenges that assumption. As we’ve already mentioned, that study shows that generous benefits- the very cost tax supporters claim it will contain – only account for 3.7% of the variations in premium for a family plan.(3) That means this tax will hit a lot of plans that aren’t generous at all.

Is it really possible that neither Mr. Furman nor Mr. Orszag have heard of these studies – and neither has anyone who works for them?

Policy experts like Furman and Orszag are free to represent their Administration or push a political line. But, like generals testifying before Congress, I believe they also have a responsibility to lay the facts out fully before the American people. They work for us. If they want to tell us why they don’t accept these new findings, fine: they can make their counter-arguments. But pretending that these studies don’t exist should not be an option. Either these White House officials are ignoring critical information, or they and their teams are unaware of some important new studies affecting their areas of policy expertise. I don’t know which explanation is worse.

Either way, we expect more from this Administration.

(1)Joint Committee on Taxation data, as summarized by the Communications Workers of America (pdf)
(2)Jon Gabel, Jeremy Pickreign, Roland McDevitt, Thomas Briggs, “Taxing Cadillac Plans May Produce Chevy Results,” Health Affairs (Dec. 3, 2009)
(3)Ibid.

(Disclaimer:  I’m actively involved in a campaign to eliminate the proposed excise tax, and any writing I do on that topic should be read with that understanding.)

3 Responses to “Is Truth the Next Casualty in the White House’s Push For the Senate Bill?”

  1. john andres Says:

    Irresistable. That is going to be the term used when the administration gets this bill passed. For the first time ever in my life the government will put a punitive tax on every medical plan used by every American in this country. Once we allow it to begin, the temptation will simply be too irresistable not to include everyone,regardless of weather you are a state, federal or a private employee. Not to mention what they will do to Social Security and Medicare.


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