Paul Nitze: Let’s not ax the Cadillac tax |

Paul Nitze: Let’s not ax the Cadillac tax

Paul Nitze
The Aspen Times
Aspen, CO Colorado

With the public option now resting in its legislative grave, the health care fight has turned to the proposed tax on “Cadillac” insurance plans. That’s the tax on high-cost insurance plans that was part of the Senate bill but was missing from the House version. If your health care plan costs more than $8,500 for you or $23,000 for your family, the Senate bill imposes a 40 percent excise tax on any cost over and above those amounts.

So far the president and his health care team have not drawn a line in the sand on this issue. President Obama says he supports the Cadillac tax, but has not insisted it stay in the final bill. Now is the time to draw that line.

Since the Republicans are in full nihilism mode on health care, there’s no real “conference committee” to speak of. Instead of formal conference, House and Senate Dems are hammering out a compromise behind the scenes. In an ideal world, this is the time to take the best parts of each bill and scrap the rest, with the hope that history will weigh heavily on wavering Democrats.

Now that we’re in the final, critical stages, union leaders are putting maximum pressure on House leaders and the president to kill the Cadillac tax. Their argument goes something like this: Our members have swallowed a decline in their real wages since the early 1970s. We didn’t make them whole, but we squeezed employers hard for rich benefits packages. Now you want to hurt them even more by taxing those benefits.

That argument has got the underlying dynamic backwards. The straight jacket we’ve gotten ourselves into with employer-provided heath care is helping push middle-class wages down. So long as we provide a massive tax advantage to health care benefits, we encourage a system that hurts employers and employees, and enriches the insurance companies.

Back in the day, during the 1950s and 60s, union leaders were doing right by their employees when they pushed for gold-plated heath care plans. That’s because medical cost inflation wasn’t a big deal and the plans weren’t treated as taxable wages. For every $1 in net wages, a worker might get $1.50 or more in heath care.

Now, when Andy Stern and Richard Trumka step up to the microphone and demonize the Senate for taxing the Cadillac plans, they’re fighting for a status quo that will eventually eat up every last bit of their members’ paychecks. They argue that what starts out as a tax on only the richest plans will eventually hit many working families. But that’s the whole point.

The Senate bill indexes the tax on the Cadillac plans to inflation. And heath care costs are increasing at a barn-burning clip that’s been triple or quadruple inflation in recent years. Our current tax structure is just more meat for the heath care beast. A system that’s already resistant to cost controls is shielded further because heath care benefits aren’t treated as income.

The larger point here is not to tax plans just for the sake of a new tax. It’s that when President Obama campaigned for the White House he promised a bipartisan approach to reform, particularly on heath care. You can score his record to date however you like, but the Cadillac tax is a hugely important symbol of his commitment to that goal.

Over the course of 2008 the Obama team pilloried John McCain for proposing to tax employer benefits. Turned out, however, that Sen. McCain was right on this one. And to his credit, the President came around. This was the single best Republican idea on heath care to come out of the 2008 race, and to drop it now would be a very bad sign.

When you dig a little deeper, this isn’t just the right policy call – it’s a move that scrambles the obvious political battle lines in constructive ways. Moderate voters should back the Cadillac tax because it holds the President to his promise that he would squeeze the cost of his bill out of the existing heath care system.

Conservative voters should back it because everyone from Fortune 500 CEOs to mom-and-pop shops are getting absolutely killed on heath care costs. What started out after WWII as a way to spread the gospel of health insurance has turned into a millstone weighing down the economic competitiveness of American business. And if you’re one of the mythical small proprietors that makes it into every GOP campaign ad on the economy, you can barely even purchase health insurance for your employees. If you can get it, the cost is outrageous.

Liberal voters should back it because they’re still steamed about losing the public option. If single payer is your goal, you won’t get there without dismantling the architecture of employer-provided health insurance. The surveys all show that Americans who get their health insurance at work are pretty satisfied with the level of care. But that satisfaction comes in part from being shielded from the true cost of that care. Taxing employer-provided insurance shines sunlight on those costs.

It’s possible to structure legislation that controls costs and expands coverage. Ditching the Cadillac tax would be a sure sign that Dems have given up on the first part of that equation. Let’s hope that Democrats in Congress and the White House are sufficiently savvy not to step over that political cliff. If they do, they’re taking our paychecks with them.

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