In Health Care Debate, Campaign Promises Clashed With Good Policy

During the health care reform debate, various commenters pointed out that Obama's plan to tax employees' health benefits (now tax-free) conflicted with his campaign criticism of Sen. John McCain's similar idea.

It turns out the administration was well aware of the conflict. From Noam Schieber's profile of White House adviser David Axelrod in The New Republic:

In the spring of 2009, White House officials gathered in the Roosevelt Room to discuss the direction of health care reform. One of the looming questions was the so-called tax exclusion. ... Pretty much every wonk in the administration believed that taxing benefits was essential. But the political team saw a problem: During the presidential campaign, Obama had criticized John McCain for a similar proposal.

Axelrod was especially concerned about reversing course. The campaign had run millions of dollars in ads specifically on the issue. To underscore the point, he screened a roughly ten-minute montage of every Obama ad blasting McCain as a tax-raiser. It was to little avail. By late July, when the president held an Oval Office meeting with several prominent health economists, it was clear he intended to endorse the tax (though it ultimately fell hardest on upper-income workers). Axelrod stood off to the side and said little.

As it became to be known, the "Cadillac tax" on expensive employee health care plans starts late and weak at the end of this decade, but it grows considerably throughout the 2020s. It's a part of the pleasure-now/pain-later compromise that was necessary to sneak the overhaul through the Senate. But there's no guarantee that the Cadillac tax will still be around by the time it's scheduled to kick in.

Republicans looking to repeal parts of the health care reform will find the central components are a bit like a Jenga tower: take out one piece and health care for 40 million Americans comes tumbling down. But the Cadillac tax isn't a Jenga piece. It doesn't provide health care and it doesn't really pay for health care. At least not any time soon. It's more like the foundation of a separate effort to "bend the curve," or slow the growth of health care inflation.

Taxing benefits survived White House politics to make it into the health care bill. But it will have to survive many years of Congressional politics to make it into the health care system.

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Derek Thompson is a senior editor at The Atlantic, where he writes about economics, labor markets, and the entertainment business.

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