Stumbling over the Cadillac Plan Tax

Stephanopoulos tries; Romer fumbles

If viewers were hungry for a little health care info yesterday from the talk shows, they wouldn’t have learned much from George Stephanopoulos’s interview with Christina Romer, chair of the White House Council of Economic Advisers. Stephanopoulos began by saying that the president now supported taxing benefit-laden health insurance plans as a way of raising money to subsidize the uninsured, who will have to buy their own coverage. And while they’re at it, the taxes on these so-called Cadillac plans will ostensibly reduce the cost of medical care.

The taxes will will force employers to offer workers cheaper plans not subject to the tax, with fewer benefits. Without the richer benefits, the theory goes, workers will think twice about going to the doctor. So if these Cadillac plans become more expensive because of the tax, then not as many people will choose them. Instead, they will choose plans with fewer benefits. Eventually, with fewer health services being used, the total amount the country spends on medical care will drop. The cost curve will be bent. That point is contentious, and so is the idea of taking good benefits away from union workers who sometimes gave up higher wages for better health benefits. That made Stephanopoulos’s interview with Romer really timely.

Stephanopoulos noted that some labor leaders call the Cadillac tax a middle-class tax increase that could hit up to 40 percent of union workers. Romer tried mightily to dodge Stephanopoulos’s question about how many union workers the tax would ultimately affect, and instead said “the important thing the president has said that he thinks that this excise tax on Cadillac plans is important” and has been convinced by experts all over the ideological spectrum that this “genuinely slows the growth rate of costs.”

“Even if it’s a middle class tax increase?” Stephanopoulos pressed.

Said Romer:

You know I think that the numbers that you were hearing, you know, that the levels where this is being set—I think the current number is something like $23,000 for a plan, a family plan—-that’s a very high level—and exempts an awful lot…

Her answers got more confusing as the interview went on. Stephanopoulos tried to challenge her, asking if she was willing to raise the exemption level from $23,000, which he said affected one in four union members, to $27,000, which could affect one in fourteen. Romer replied:

No, you—you absolutely—I think you’ve got to be very careful on the numbers. They’re actually, as it’s being developed—they’re being, you know, changes made to make sure that, if you’ve got just older workers and that’s why your costs are higher, or things like that, if you’re a first responder, so we’ve been very receptive to—you know, arguments like that, and also, the—you know, sort of the—level at which you set. I think the important thing is the—you know, the incentives that it provides to genuinely slow the growth rate of costs. If this thing works just right, nobody hits it, right, because—precisely because it slows the growth rate of costs.

No, Ms. Romer. The public doesn’t know. I, for one, didn’t know what you meant by older workers and higher costs. Did you mean that insurance provided by companies with lots of older employees should be subject to the tax or not subject to the tax, or something else? And the comment about first responders really puzzled me. I thought of 9/11.

Stephanopoulos acknowledged that slowing down the cost of care could mean that “insurance plans might be dropped.” And then he turned to an increase in medical costs predicted by Medicare’s actuary. The conversation got muddy. It is unlikely that most of ABC’s viewers understood that slowing the cost of medical care in employer-based plans might reduce the cost of Medicare—a big chunk of the federal budget and a contributor to the deficit, which Romer said would shrink because of the excise tax. Whew!

For readers who want a fuller—and clearer—explanation of the excise tax on the Cadillac plans, Campaign Desk recommends Saturday’s story in The New York Times. The piece was a good blend of explanation and politics. The explanation part gave the rationale for the tax—the Senate probably would not go along with the House’s plan for funding subsidies, an income tax surcharge on rich people. An aide to Senate Finance Chairman Max Baucus said the tax would also incentivize employers to find the best possible cheaper plans. She didn’t mention what benefits would look like under a less expensive plan; that would have been a good point for the Times to make.

The paper did let the unions push back on other arguments made by economists, including one by the ubiquitous Jonathan Gruber from MIT, who predicted that the excise tax might just raise workers’ wages from 2010 to 2019. Balderdash, countered the president of the United Steelworkers, Leo Gerard.

The people who are promoting this tax say companies will make up for this with higher wages. These people who say that have never been at the bargaining table. It doesn’t work that way.

It does kind of call into question Mr. Gruber’s experience with the nitty-gritty of collective bargaining.

The political part examined what might happen to Democrats in the fall elections if they support a tax that affects workers and the middle class. Ron Gay, an AT&T repairman in Ohio who urged co-workers to vote for the president, told the Times: “If this passes in its current form, a lot of working people are going to feel let down and betrayed by our legislators and president.”

The story lede did mention another important political point: When John McCain talked about taxing health insurance benefits during the campaign, and many union workers were thinking about voting for him, the labor unions steered them back to Barack Obama, repeatedly saying McCain wanted to tax their health benefits. Later in the piece, the Baucus aide said there was a difference between what McCain wanted to do and what Obama supports. McCain wanted to eliminate all tax breaks for employer-provided plans, and the president just wants to tax policies that fall above a certain threshold. Some experts view Obama’s approach as a way to ultimately end the tax breaks. The finer points of all this are the subject of another post. Still: Is that the reason Christina Romer had so much trouble finding the right words to say?

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Trudy Lieberman is a longtime contributing editor to the Columbia Journalism Review. She is the lead writer for The Second Opinion, CJR's healthcare desk, which is part of our United States Project on the coverage of politics and policy. She also blogs for Health News Review. Follow her on Twitter @Trudy_Lieberman.