AnnotatedOpinions.com

The bill that passed the Senate with such fanfare on Christmas Eve would impose a confiscatory 40 percent excise tax on so-called Cadillac health plans, which are popularly viewed as over-the-top plans held only by the very wealthy. In fact, it’s a tax that in a few years will hammer millions of middle-class policyholders, forcing them to scale back their access to medical care. . .  

Proponents say the tax will raise nearly $150 billion over 10 years, but there’s a catch. It’s not expected to raise this money directly. The dirty little secret behind this onerous tax is that no one expects very many people to pay it. The idea is that rather than fork over 40 percent in taxes on the amount by which policies exceed the threshold, employers (and individuals who purchase health insurance on their own) will have little choice but to ratchet down the quality of their health plans. . .  

If even the plan’s proponents do not expect policyholders to pay the tax, how will it raise $150 billion in a decade? Great question. . .  

According to the Joint Committee on Taxation, less than 18 percent of the revenue will come from the tax itself. The rest of the $150 billion, more than 82 percent of it, will come from the income taxes paid by
workers who have been given pay raises by employers who will have voluntarily handed over the money they saved by offering their employees less valuable health insurance plans.  

Can you believe it?  

“In the real world, companies cut costs and they pocket the money . . .”  

[AO: The writer, Bob Herbert, argues that there is a problem with the tax on Cadillac health plans included in the Senate health insurance bill. According to Herbert, the anticipated $150 billion in revenue that is expected will be generated by the tax is unlikely to materialize because businesses will cut health insurance spending in response to the tax and pocket the difference rather than pass it on to employees as pay raises. Let’s see what three hypothetical companies might do.  

Say Company A, Company B and Company C each spends $1 million on employee health insurance and all their plans are so-called Cadillac plans. These round numbers will keep the math simple. Assume further that the tax included in the Senate bill will cost each company 40 percent of the value of all their Cadillac plans ($400,000 for these companies).   

Company A, acting according to Herbert’s scenario, would lower the value of its Cadillac plans to a level at which coverage is no longer taxed. Say Company A lowers the value of the plan to $500,000. It will then pocket the remaining $500,000 without giving its employees a raise.  

However, a company that is simply interested in responding to the new tax can act in one of two other ways, only one of which is described by Herbert. Company B, acting according to the scenario anticipated by proponents of the bill and described by Herbert, would also lower the value of the plan to $500,000. But instead of pocketing the remaining $500,000 in savings, Company B passes that savings to employees in the form of pay raises. That would leave companies in the same position that they were in before the tax. Herbert suggests managers will pocket the $500,000, using health insurance reform as a reason to do so. But if this is what managers want to do, why do they need health insurance reform to lower their spending on health insurance for their employees?  

As alluded to above, a company interested in maintaining its budget for employee health insurance has another alternative. The company can reduce insurance coverage by the tax amount. Let’s say this is what Company C does. That is, instead of lowering the value of its plan to $500,000, it lowers the value to $700,000 so that the cost of the plan remains approximately $1 million when the next tax is included.  

In light of the choice Company B and Company C make, again, why would a Company A ratchet down the value of its plan and pocket the difference? The only explanation is that Company A is looking for ways to cut health insurance costs and is using health insurance reform as an excuse. After all, as illustrated by Company B and Company C, if a company is only interested in avoiding paying more for health insurance, it has options. Yet, if a company wants to cut employee health insurance, why wait and try to pin it on Congress? Employers have been raising health insurance premiums and lowering coverage for years. ]