Left Persuades Obama To Delay Health Care Taxes Until 2018

White House Punts On Containing Health Costs


At Thursday’s health summit, President Barack Obama is almost certain to highlight the importance of reining in skyrocketing health care costs.

But in his own health care bill, it’s a different story.

Obama has put off a tax on high-cost health plans until 2018 — long after he’s out of office, even if he’s a two-termer.And in doing so, he’s essentially neutered the last significant Democratic push to control health costs.

When Obama launched his health care project, the case for reform rested on two pillars. One was helping people who had no insurance or were otherwise struggling with the current system. The other was taking dramatic steps to halt the growth in costs. As the debate lurches toward a close, the emphasis in Obama’s plan now rests overwhelmingly on the first pillar — with only the most modest and preliminary measures being embraced for cost control.

“They thought [the tax] was a major part of their ability to slow the growth in private-sector premiums. And now, at least until after 2017, it doesn’t look like they will bend the cost curve,” said Ken Thorpe, an Emory University professor and Democratic health policy adviser.

In fact, the delay raises questions about whether the tax will ever return. Obama’s punted the decision to some future president and some future Congress that would have to let a brand-new tax come into effect on their watch.

Chalk it up to politics.

Some of Obama’s biggest supporters, labor unions, hate the tax because it hits their members with so-called Cadillac plans. Liberals don’t like it either. And Obama badly needs their support if he still hopes to get his $950 billion health care plan through Congress after Thursday’s summit.

Obama had already agreed to push the start back to 2018 in a special deal for labor union members. Now he’s giving that deal to all Americans and boosting the threshold from $24,000 to $27,500 for family plans that will be hit by the tax.

“This was designed to get more support from the Democratic Caucus. Not surprisingly, there’s higher overall costs and fewer steps to get the savings necessary to pay for those costs,” said Mark McClellan, a former Clinton and Bush administration official who is now a health care economist at the Brookings Institution.

The Cadillac tax is “really the main piece of getting down the cost of health insurance,” and Obama’s changes make it “significantly weaker,” he said.

Even Obama’s own budget chief, Peter Orszag, has previously touted the excise tax to explain how a near-trillion-dollar Democratic health care plan could still cut costs in the health care industry.

But now, Democrats are cheering its demise, at least for eight years.

At a meeting with House Democrats on Monday night, Speaker Nancy Pelosi boasted that the president’s proposal slashed the tax by 80 percent, according to a senior House Democratic aide.

And it’s a claim the White House’s numbers bear out.

As proposed in the Senate bill, the tax would have generated about $150 billion, but Obama’s plan brings in only about $30 billion. The president makes up the $120 billion difference by putting a 2.9 percent Medicare tax on unearned income for families making more than $250,000 annually and by closing two tax loopholes unrelated to health care, according to a senior White House aide.

The official acknowledged that economists correctly viewed the Cadillac tax as one of reform’s most important cost-control provisions.

But the aide defended the changes, arguing that in a tough political environment, it was a victory that the tax survived at all. The president improved the tax by removing dental and vision coverage and ensuring that the tax doesn’t fall disproportionally on businesses with greater numbers of older and female employees.

Now the tax “is better focused on costly plans rather than ... workers who just happen to be costly,” the aide said.

The president’s plan also indexes the premium costs that trigger the tax to inflation plus 1 percent, which is less than traditional health care cost increases. That means if health care premiums continue to rise at a faster clip than inflation plus 1 percent, more insurance plans will be subject to the tax, and insurers would face pressure to offer cheaper plans that aren’t taxable — a move that would help contain health costs, the aide said.

But with its delayed implementation, those would be longer-term savings.

There are still a number of provisions in the president’s plan that will control costs in the short term, including an independent Medicare payment advisory board, administrative simplification, comparative effectiveness research and cutting waste, fraud and abuse in Medicare and Medicaid, the aide said.

“The president’s proposal has a wide range of measures aimed at slowing the growth of health costs. One of those measures is the high-premium excise tax, which is designed to slow the growth of costs over the medium-to-long run. A design that is preserved and strengthened in the president’s proposal,” the aide said

In fact, Democratic health policy consultant Chris Jennings argues that far from neutering the Cadillac tax, the president’s plan was an artful compromise that salvages an important cost containment provision while making it difficult for future administrations or Congresses to undo.

If the Cadillac tax became law, it would have an immediate impact on the budget outlook in future years because it generates revenue. And under the recently enacted pay-go provisions, if lawmakers wanted to remove the tax, they would be forced to find money from elsewhere to pay for it. Killing the tax would also likely raise premiums, a combination that makes it much more difficult to strip the tax from law, Jennings said.

While the president’s plan is far from perfect, Jennings said, Obama has to make a much stronger case that doing something is better than inaction.

“The consequence of not taking action in all those areas will be a policy choice that allows for increases in premiums and co-payment that harm workers and employers alike and undermines the solvency of the Medicare trust fund,” Jennings said.

Still, the argument that Democratic reforms should be scrapped because they don’t do enough to control costs is a potent political argument and a favorite of Republicans and industry critics.

The insurance industry has been making the cost-containment case for months and reiterated it when Obama’s plan was released Monday. Democrats have singled out insurers as the poster child for skyrocketing health care costs, and the president’s plan proposed giving the federal government authority to block unjustified rate increases. Karen Ignagni, the president of America’s Health Insurance Plans, said it was wrong to single out her industry when total health care costs as a share of the economy jumped by 1.1 percent last year — the largest increase in history.

“There’s a heavy dose of politics at work. There’s been a strenuous effort to focus on health plans because very few policymakers want to take on the real issue of why costs are rising,” Ignagni said.

Those reasons include the high cost of medical services, a lack of transparency that prevents comparative shopping and payment systems that reward volume instead of value. Premium increases, she said, reflect the underlying increases in the cost of medical services.

“Regulating premiums won’t do anything to reduce the soaring costs of medical care,” she said. “This would be like capping the price automakers can charge consumers, but letting the steel, rubber and technology manufacturers charge the automakers whatever they want.”


Sources: Politico