Should Top-Shelf Health Care Be Taxed?

A proposed tax on "Cadillac" plans could pay for reform--unless it backfires

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One of the most-debated provisions of the finance committee's health care bill, to be voted on this afternoon, is the tax on "Cadillac" plans. The plan would tax expensive, "gold-plated" health insurance plans, which supporters say would help control consumption and bring in billions in taxes. This revenue, projected at as much as $200 billion over ten years, would help fund health care reform, making it deficit-neutral or even reducing the deficit. But taxes are never politically popular, and critics warn that this one could raise premiums for more than just the rich.

  • Brilliant Cap on Costly Over-Consumption A Chicago Tribune staff editorial applauds the plan, noting that many Americans, especially those in unions with strong bargaining power, have far more expensive health insurance than they need. "Such lavish coverage invites people to overindulge in health care. If it's free, they'll get the necessary care and the unnecessary care. If it's free, they'll order the brand-name drug instead of the just-as-effective generic. If it's free, they won't think twice about another trip to the doctor's office. That doesn't make them much healthier, but it does drive up demand, and that drives health care cost inflation for all of us," the write. "This page sets a high bar for support of tax proposals. This meets the test."
  • Won't Just Tax the Rich Robin Baker warns in the Huffington Post that more than just Goldman Sachs bankers could be affected. "Given that the medical costs have grown between 7 percent and 10 percent over the last few years, it is possible that benefits in some geographic areas could exceed the tax trigger by 2013. Those in high-risk professions, such as firefighters and coal miners, have higher utilization costs and would easily be subject to the excise tax," writes Baker, Huffington Post blogger and health care director at progressive think tank the Bell Policy Center. "As people age, health care premiums increase and as premiums increase, it is possible that those that did not exceed the threshold in 2013 may be taxed in the future. The cost of plans could become a problem for employers with an older workforce."
  • Don't Rely on Cadillac Tax Revenue At Commentary, Jennifer Rubin points out that the tax can bring in revenue or force employers to buy cheaper care, but not both. "The tax really won't be paid, because employers will start cutting back on health-care benefits, say supporters of the scheme. Turning Cadillac health-care plans into Yugo health-care plans won't be so easy for unionized employers with collective bargaining obligations," Rubin, a conservative blog for Commentary, writes. "And let's suppose all employers cut back so there aren't so many Cadillac plans out there. Where is the money going to come from to pay for the whole scheme?"
This article is from the archive of our partner The Wire.