Obamacare and the Cadillac tax–not painless, but an important piece of the puzzle.

July 15th, 2015 at 10:38 am

Over at PostEverything. Not the most popular position, I know. But I think it’s the right one.

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3 comments in reply to "Obamacare and the Cadillac tax–not painless, but an important piece of the puzzle."

  1. Randy Denman says:

    I’ll be arguing for a new three year union contract soon and the 40% tax is certainly going to be a contentious issue for us. Can you suggest any advice or formula to use in order to argue for higher wages to make up for an increased deductible?

    • Jared Bernstein says:

      Good question. If you’re paying an increased deductible, the plan is surely less expensive, meaning the employer is paying less for it. This is a main way employers will stay under the new caps once they kick in. So, if your employer is paying less for your plan, who pockets the $ that used to go to the insurer on your behalf? It should go into your paycheck, and that’s the bargaining position I’d recommend.

  2. David Rhodes says:

    Dear Mr. Bernstein,
    Generally I find what you write useful and accurate. Unfortunately, your 7/15/15 piece in the Washington Post is not up to your usual standard.
    I assume your essay is directed at liberals, probably labor unions, who have hard won generous health care benefits that will be subject to the so called Cadillac Tax, and who thought the so called Cadillac Tax was a bad idea when the legislation was being debated and enacted. You hope to persuade them not to try to repeal or modify the tax by making a series of claims for which there seems to be no evidence.
    As we both know the phrase “Cadillac Tax” is a kind of Reagonesque perversion designed to obscure who really benefits from generous healthcare plans – those who have bargaining power. In short many of those affected should be natural Democratic constituents, but for unexplained reasons they will be made to suffer.
    You think that the tax is a good idea because it raises money and might lead to cost control. However, by cost control you really mean premium control. But the tax and premium control are incommensurate goals. In so far as premiums are controlled revenue is reduced. According to your reasoning the tax will incentivize those controls that will undermine the tax and thus undermine the ACA. If premiums are controlled someone will have to “root… around for a substitute tax”.
    You argue that the tax creates incentives to hold down coverage costs. To avoid paying the excise tax, companies will stay under the cost cap by shifting from generous low deductible plans to ungenerous high deducible plans blaming the ACA for the change. In other words, costs that are now borne by employer plans will be shifted to employees. The tax will merely incentivize cost shifting with the ACA credibly blamed for the worsening of people’s health care plans. If you are concerned about reopening the debate around the ACA, the Cadillac Tax is a sure way to get what you do not want.
    You argue that the Cadillac tax “incentivizes cost savings”, but you present no mechanism for employers to hold down costs in an increasingly oligopolistic market. You might think that as workers are subject to additional out of pocket costs that they will learn to bargain more forcefully. But Uwe Rheinhart has correctly noted that “ the application of this idea in practice has been as silly as it has been cruel…”
    A more basic problem with your analysis is the belief that monies saved by holding down premium costs will be given to workers in the form of increased wages. But there is no evidence for this claim. In fact all of the evidence is on the other side. Wages have stagnated and healthcare benefits have eroded. Only Glenn Hubbard seems to believe otherwise. We both know firms will not give up the savings without being forced to do so by the very groups that the tax seems to undermine.
    But for argument’s sake let’s assume that employers will give workers one dollar for each dollar that employers saves and further that the money will be given to workers on an capitation basis rather than in proportion to existing salaries. That money is now subject to income tax and FICA. By definition there is less available to support worker healthcare than before the tax, a perverse outcome from the perspective of providing first class healthcare to all.
    Unless the purpose of the Cadillac tax was to destroy employer provided healthcare so as to bolster the exchanges, the Cadillac Tax was an ill-conceived measure from the beginning. Instead of taxing the benefits of the well to do, it will destroy the benefits of those who work for a living and are fortunate enough to work for companies that provide generous benefits.
    David Rhodes