The Middle-Class Health Tax Must Be Stopped

December 8, 2009

Liberal/Democratic Washington policy thinkers appear close to reaching the consensus view that the Senate’s excise tax on higher-cost health plans is a good idea. Here’s the problem: The consensus is wrong. The so-called (and misnamed) “Cadillac tax” is unfair and unwise. It’s also a political landmine for its supporters, and a political goldmine for those who oppose all health reform. It must be stopped.

Why do I feel so strongly about this issue? Probably because I’ve been involved in the health care field for nearly thirty years, in roles that include data analysis, health policy, private-sector management and consulting, and international development. Before I began writing and blogging I worked for private and public clients domestically and in over 20 other countries. Yes, I confess! I’ve worked in the much-disliked health insurance industry. But that work taught me many valuable lessons, one of which is that an idea may look good on paper and work out very badly in real life. The health excise tax looks a lot like one of those “looks good/works out badly” ideas.

That’s why I intend to spend a great deal of time in the next few weeks working to prevent this tax from being enacted into law. I will be working closely in this effort with the Campaign For America’s Future, whose leadership understands the political and human damage this tax could inflict. For the next six weeks I’ll be maintaining a blog page at CAF’s website called “No Middle-Class Health Tax,” which will lay out some of the arguments against this tax and will track new findings and developments in this area.

Here are some of the key arguments against this tax:

  • It’s based on flawed logic:  Adherents would have you believe that the excise tax will change the way people use medical services – for the better.  In the days to come we will demonstrate why this is untrue.
  • It’s a tax on middle-class Americans: They call it a “Cadillac tax” because it was originally pitched as a way to make wealthy executives pay for their luxury plans.  But this tax isn’t tied to overall income.  It will hit middle class families the hardest – and because health plan costs are rising much faster than the tax’s inflation index, it will hurt more middle-class families every year.
  • It’s anti-union:  Many American unions traded real wages and other forms of income in order to ensure that their members got decent health coverage.  Taxing those benefits will provide employers with an excuse to break their promises and cut these benefits, while giving nothing back in return.
  • It’s bad politics:  We will show that this tax is likely to hurt politicians who support it. This is true nationwide, and especially in some states and regions where it can least afford to alienate core constituencies.  We will show in the coming weeks why this tax is unpopular and how it is likely to hurt the party’s chances in 2010.
  • It could promote bias in hiring: Health plans become costly for a variety of reasons. Benefit design, the target of the tax, is only one reason. Geographical variations in health cost are another. An older workforce and other demographic factors also drive costs. This tax does not do enough to distinguish these cost drivers, and could make employers reluctant to hire certain workers.
  • Campaign promises are being broken:  A number of candidates in last year’s elections, including the President, promised voters that health reform would not result in new taxes for the middle class.  They also promised voters that “if you like the plan you have now, you can keep it.”  This tax not only breaks the first promise, but also the second.  Employers will cut current health plans in order to avoid this tax.

There are other compelling reasons to oppose this tax, but this list hits most of the key points.

I know first-hand that the common wisdom of accepted policy experts can be wrong. During last year’s primaries I said that mandates wouldn’t provide “universal coverage,” contrary to expert opinion, and “guesstimated” that such a plan would still leave 8 million uninsured. Now the CBO estimates that figure at nine million, which is pretty close. I said the “opt-out” public option provision was nothing to celebrate, predicting that at least 20-30% of states would use it (while many liberal policy analysts insisted that none would.) Now the CBO essentially agrees with my number. I also said that a public option without Medicare-based rates or a common administrative platform might not reduce costs at all, and the CBO validated that argument too. (They estimate a public plan under current proposals could actually be more costly – and they may be right.)

Many of the experts promoting the excise tax failed to anticipate the problems that Massachusetts would face in enacting its health reform proposal. So the conventional wisdom can be – and has been – wrong. The same shortsightedness is at work here. This is not a partisan issue, nor should it be. The numbers and the logic drive inexorably to one conclusion: The excise tax is a bad idea, both as policy and as politics, and must be stopped.

I hope you’ll be moved to join the effort by getting active on this issue in the days and weeks to come. Most of the middle-class plans under attack are pickup trucks, not Cadillacs. They may be “ram tough,” like the TV ads say, but they’re not luxury vehicles. They’re hard-working and durable, and they carry a lot of middle-class Americans. They shouldn’t be driven into a ditch.

(The new “No Middle-Class Health Tax” web page can be found here. Please check back regularly, as we’ll be updating it more than once a day.)

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