Presidents’ plan to hit ‘fat cats’ backfires

President Meets with Unions to Cut Deal

President Gives Unions Special Deal

After almost a year of back and forth in Congress, with health bills having made it through the House and Senate, negotiation in conference committee is exposing the obvious flaws that have existed in both proposals from day one. The President believes that this tax, which he views as an excise tax, is important both in terms of paying for his health reform proposals but also to curb health expenditures overall.   The thinking is that these high-end plans encourage beneficiaries to use medical services that they might otherwise think twice about if paying out of pocket. The so-called “Cadillac tax would force insurers would have to pay a 40% fee (tax, excise tax, levy, surtax, surcharge; whatever term you prefer) on health insurance policies they issue costing more than $8,500 a year for an individual or $23,000 for a family.

President Obama has been forced to meet with union leaders who worry that the Senate healthcare reform bill’s ‘Cadillac tax’ on expensive health-insurance policies could affect union members.    The House version of the healthcare reform uses this surtax on high-income individuals and families for a large share of its revenue generation. In the end, all citizens find they are split personally on this issue. We all want to slow the rise in health spending, but not our own. One family’s health care is a benefit while another family’s health care is a cost. Another political problem for the President is that the ‘Cadillac tax’ would likely affect a large swath of Americans regardless of income.  This would then be tantamount to a tax on the middle-class, an event that Mr. Obama, the candidate, prominently announced would not happen on his watch.  Many House Democrats, worried about the fall elections, are determined to strip the provision from any final bill that is negotiated.

The President initially presented his plan as a populist, ‘stick it to the man’ concept, designed to get back at Wall Street executives, under the notion that they needed to pay their fair share.   They talked specifically about the $40,000 dollar plans for executives at Goldman-Sachs.  However, the bill that the Senate crafted proposed charging insurance companies a 40% excise tax for ‘high-dollar’ plans. The Senate Democrat’s bill calls for the tax to apply to plans exceeding $8,500 for individuals and $23,000 for families, for the cost of combining health savings accounts, medical, prescription drugs, dental, vision, and other related health services.  Although the tax is charged to insurance companies, there is no doubt that the cost will be passed on in the form of higher health insurance premiums paid by employers.  So in the end, this becomes essentially a tax on business, small, medium and large.  We all know that that means higher prices for goods and services as those higher premiums will have to be paid for.

Labor leaders are not a happy bunch and very upset with the president for supporting this tax. Reason: union members enjoy some of the most gilded health plans in the nation. Unions such as SEIU (created by the founder of ACORN), AFL-CIO, and AFSCME have publicly opposed the “Cadillac tax” saying that it will end up falling disproportionately on the middle class.  Very few pundits, however, expect these unions to oppose Democrats’ health care reform efforts. The idea behind the tax again is that employers would be less likely to offer them, meaning workers would pay more, likely leading to less care. When you ask patients to pay more so the theory goes, they will use less care. Critics feel this approach is wrong headed in that in the end, it sends individuals to the emergency room, costing more in the long run. Proponents feel that individuals will still get care, but will be more concerned about costs.  They contend that there would be no effect on the quality of care, believing that no one would postpone necessary care knowing that they might get sicker later on.

One leading voice against the “Cadillac tax” has indicated that the proposed excise tax on high-dollar insurance plans is generating heated opposition among House Democrats.  He has contended that the issue is far from resolved and that the House leadership is well aware of opposition within the Democratic caucus. The fundamental question remains as to who will pay for health reform through higher taxes once any bill is passed. The House bill increases places a 5.4% income “surtax” on individuals making more than $500,000 annually and families making more than $1 million. The Senate taxes upper- and middle-income earners through a payroll tax increase on family income over $250,000, as well as the “Cadillac tax,” on insurance companies’ high-dollar health plans.

Health analysts and critics of the tax say the measure will tax millions of middle-class workers who have high-cost insurance because of their age, health or make-up of the plan offered by their employer. Proponents argue the tax will reduce the cost of health insurance across the board by discouraging insurance companies from offering the most expensive coverage. No matter how you look at it, the result will be a middle-class tax increase and in an election year, that is something that many House Democrat’s will not support. The irony of all this is that Obama himself was opposed to a tax on “Cadillac plans” as a candidate. He even has his campaign produce an ad blasting John McCain for proposing a tax on health benefits.

Most believe that the President will urge passage of ANY bill feeling that there is a deal here so let’s make it. Insiders also contend that they will likely raise the threshold so that fewer of these policies would get taxed. That appears to be part of the new deal that is coming out, one which will exempt union members exclusively from this tax.  Talk about buying support!  This on top of the Louisiana Purchase (Mary Landrieu), The Nebraska Compromise (Ben Nelson), the Florida Fix (Bill Nelson) has to make anyone who considers themselves a true citizen of the Republic wince.

One question no one has bothered to voice: what if employers and insurers drop ALL high end plans.  How will the geniuses in the government make up the revenue short fall then?  We all know the answer to that question.  More taxes – the only solution they ever can think of . . . obi jo

Newest hurdle to how to pay for healthcare reform: unions – http://www.csmonitor.com/USA/Politics/2010/0111/Newest-hurdle-to-how-to-pay-for-healthcare-reform-unions

How a Tax Can Cut Health Costs – http://www.nytimes.com/2009/09/30/business/economy/30leonhardt.html

‘Cadillac Tax’ in Health Plan Would Hit Middle Class Hard – http://www.politicsdaily.com/2009/12/17/cadillac-tax-in-health-plan-would-hit-middle-class-hard/

Do Cadillac health plans drive up costs? – http://marketplace.publicradio.org/display/web/2010/01/11/pm-cadillac/

‘Cadillac’ Tax’ Puts Obama on Collision Course With House Democrats – http://www.politicsdaily.com/2010/01/11/cadillac-tax-puts-obama-on-collision-course-with-house-democr/

‘Top Line’ — Can Obama Sell a Cadillac Tax? – http://blogs.abcnews.com/thenote/2010/01/top-line—-can-obama-sell-a-cadillac-tax.html

‘‘Affordable Health Choices Act’’, Senate Health Care Bill http://help.senate.gov/BAI09A84_xml.pdf

http://www.associatedcontent.com/article/2574279/obamas_cadillac_health_plan_tax.html?cat=5

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