Rep Joe Courtney: I have 190 Democrats Against the Tax on “Cadillac” Health Insurance Plans
Firedoglake
By: David Dayen
January 6, 2010
On a conference call put together by the Economic Policy Institute, Rep. Joe Courtney (D-CT) said that he has the signatures of 190 Democrats on a letter opposed to the excise tax on high-end “Cadillac” insurance plans, and that stopping this tax was the “#1 priority” of the House of Representatives as they move to reconcile the House and Senate health care bills.
Courtney actually collected the signatures against the excise tax back in September and October, but he said that in the only caucus of House Democrats before Christmas, the majority of comments from members objected to the tax. He said that the Senate is “leaning hard for their position,” and they have some support from the White House. But judging from Nancy Pelosi’s recent comments, “this is where there’s the most resistance to the Senate plan because she knows this is where the caucus is.”
Courtney believes that the feeling has intensified among House Democrats because of input from constituents at town hall meetings and polling, both public and private. He cited several public polls showing 2-1 opposition to the excise tax, and said that members have conducted their own polling showing the tax to be “politically toxic.” He added that “on policy and political grounds, the House approach is right approach.”
TPMDC reported today that Speaker Pelosi does privately want the excise tax stripped from the final health care bill. This added pressure from Rep. Courtney only adds to the dilemma, as the White House has endorsed the Senate financing structure.
Both Rep. Courtney, EPI policy analysts Larry Mishel and Josh Bivens and former Clinton Labor Secretary Robert Reich offered compelling reasons why the House version of financing, featuring a surtax on high-income earners, would be preferable to the excise tax. Courtney noted that, according to a Joint Committee on Taxation study, 27% of family plans would be hit by the tax in its fifth year of operation in 2019, and 22% of individual plans. He termed the indexing of CPI +1% “inadequate,” and believed that, as health insurance premiums go up, the excise tax would turn into “the AMT on steroids.” That’s a reference to the alternative minimum tax, which was originally designed to affect high-income earners who avoided paying taxes through multiple deductions, but which now impacts so many people in the upper-middle class that a patch is offered every year. My guess is that would be how the excise tax would work in practice, making it ineffective as a revenue raiser.
Furthermore, it’s completely unclear that this tax, designed to target insurance plans which are too lavish, would actually meet that goal. Because of the age rating in the Senate bill, where insurance companies would be able to charge three times as much for an older customer than a younger one, the tax would disproportionately hit older Americans. In addition, regional disparities play a major role in driving premium prices, which middle class families cannot control. (There is a 3-year grace period for those regional disparities, but it’s unclear how those costs will be equalized in three years’ time.) “For people to be taxed for these factors has no bearing on good health care policy,” said Rep. Courtney. “I don’t know what they were thinking at the Senate Finance Committee, but it’s a joke.”
Josh Bivens of EPI added that recent studies showed only 4% of the cost of insurance plans can be attributed to the generosity of those plans. “It’s more proper to title it a small business health insurance tax” than a tax on “Cadillac” plans, he said.
There are carve-outs for certain industries, like longshoremen and public safety workers, in the Senate bill, but this shows the impossibility of trying to target plans with offer lavish benefits. Larry Mishel of EPI noted that 75% of all teacher plans would be affected because that profession employs a disproportionate number of older women.
Bivens added than any cost containment from the excise tax would be derived from consumers cutting back on their own health care coverage. And he said that is “not the way to go after the trend in high health care spending… Consumers are not the people to decide what health coverage to squeeze out.” Dr. Reich added that if working families needing health care are forced to cut back, that defeats the entire purpose of the bill. He also said there are far better ways to control costs on health care spending, such as through bargaining to lower down prescription drug costs. He called the excise tax “a blunt instrument” and added, “to put the onus on older workers and small businesses is not only unfair but inefficient,” said Reich.
Reich and Mishel both pushed back on the idea that employers would make up for decreasing their health care costs by increasing wages for employees. “There’s no reason to assume that wage increases will come forth, especially in the current environment, and there’s no reason to suppose that wage increases would equal the amount of coverage foregone,” because that coverage came on pre-tax dollars. Mishel added that health care costs are not a major part of overall compensation packages (about 7%), and the rise in health care spending by employers over the last twenty years would have amounted to just a 0.1% increase in wages annually. “The problem is that workers are not benefiting from productivity growth because employers have the upper hand,” Mishel said. “If health care costs go down, employers won’t raise wages in response.”
Courtney added that the genesis of the excise tax, essentially, was John McCain’s Presidential campaign, which called for the complete elimination of the employer deduction for health care benefits. Despite it being initially a Republican idea, “the GOP won’t give Democrats a free pass for this.” He noted that the Chamber of Commerce is targeting the “tax on benefits” in their main ad against the health care bill.
“When McCain proposed this (in the campaign), the Obama campaign went for his throat. The paid media they put into this issue was huge. The issue had tremendous potency. I don’t see any indication that the change of heart in the White House has changed the American people’s hostility to the idea.”
UPDATE: In case you’re interested, here’s EPI’s report on health insurance, the Cadillac tax and wages.
Health-care reform bill's proposed tax on high-cost plans raises questions
Washington Post
By: Alec MacGillis
January 7, 2010With Congress on the verge of imposing a new tax on high-cost health insurance plans, skeptics continue to raise questions about who would be hit hardest and whether health-care spending would be limited as much as proponents say.
The Senate health-care legislation includes a 40 percent excise tax on insurance plans worth more than $23,000 per year for a family of four. When the legislation would go into effect in 2014, only a small fraction of all plans would be taxed, but more would be captured over time: roughly a quarter by 2019, collecting about $150 billion over 10 years.
The House legislation instead relies on an income tax surcharge on families earning more than $1 million. But centrist Senate Democrats are opposed to the surcharge, and the excise tax has been endorsed by the White House and many health-care economists, who tout its cost-containment potential.
Supporters of the Senate provision say it would restore some equity in the tax system, which exempts employer-provided health benefits while forcing people who buy insurance on their own to use after-tax dollars. To avoid the tax, supporters predict, employers and employees would shift to less-generous plans that would make patients more sensitive to costs, slowing the growth in health-care spending. Employers, the theory goes, would put the savings into higher wages.
Who would be taxed?
But as the tax proposal takes on an aura of inevitability, pockets of skepticism remain, even beyond labor unions, which are often cast as the main opposition because many union plans would be taxed.
Health analysts recently questioned the assumption that the tax would target only the most lavish insurance packages, nicknamed "Cadillac plans." The analysts, writing in the journal Health Affairs, found that some less-generous plans could be taxed because they are costly for other reasons. The location of an employer and the type of industry, for example, have as much to do with the cost of plans as the generosity of the benefits and the kind of plan. Smaller businesses, especially those with a preponderance of older workers, tend to have higher premiums, as do certain industries, including the health-care sector.
The Senate bill would phase in the tax more slowly in some higher-cost states and exempt a few industries that tend to have expensive plans, such as mining. But opponents say it is impossible to find a workable way of targeting the tax so it would spare people whose plans are not particularly generous.
"It's a very blunt instrument," said former labor secretary Robert Reich. "It makes far more sense on policy and political grounds to tax the top 1 percent rather than sweep in so many people that are paying more for health care, not because they are getting more health care but because they're older or working for small businesses."
Rep. Joe Courtney (D-Conn.) notes that Obama pledged not to raise taxes on anyone earning under $250,000 and that he attacked Sen. John McCain (R-Ariz.) on the campaign trail in 2008 over his plan to do away with the tax-free treatment of employer-provided benefits. Pro-Republican groups are already turning the tables by running ads accusing Democrats of wanting to tax benefits.
"It's a plan that has great political risk for the Democrats," Courtney said.
Would it lower costs?
Separately, several health-care experts question whether shifting people into lower-cost plans is the best way to slow spending. It is possible, they concede, that the tax could move more employees into HMOs known for more efficient spending. But many markets lack such options.
It is more likely that employers would lower the cost of plans by increasing deductibles and co-pays, which skeptics say would not necessarily bring down health-care costs. Most costs are incurred by a minority of chronically ill patients. And health care is not like other markets, where consumers can make their own judgments based on quality and price; instead, patients make most major health-care decisions based on what their doctors tell them, skeptics point out.
A Rand study from the 1970s found that higher co-pays and deductibles led patients to limit medically necessary care as much as wasteful care, possibly leading to more costly health-care needs later.
"The consumer-directed-health-care crowd argues that with high cost-sharing, patients will do the only legitimate . . . cost-benefit calculus -- but that surely is nonsense," said Princeton economist Uwe Reinhardt. "None of these proponents has ever shown that patients are even capable of evaluating the clinical merits" of treatment options.
Opponents of the tax say the case for it assumes that the country's high health-care costs are the result of patients' overuse of care. But, they note, the country's usage of medical care is by many measures lower than in other developed countries; it is the price that is so much higher here.
"The biggest problem we have isn't that we're demanding so many services, but it's that the type of services we're providing are so expensive," said Thomas Rice, a UCLA health-care expert.
Some economists also doubt that employers would shift savings from health care into wages, given how slack the labor market is likely to be for the foreseeable future.
Jonathan Gruber, an MIT economist and a leading proponent of the new tax, dismisses these concerns. Even if the tax hit some high-cost plans that are not particularly lavish, it would still goad employers generally to seek lower-cost plans, he contends. "The argument that because it won't cause efficiency in every case, we should therefore not do it, is a dumb argument," he said.
Bringing the plans below the tax threshold would require only slightly higher deductibles, he said, enough to make people more cost-sensitive but not enough to make them skip necessary care. "If you take people at the level where they're spending $23,000, that's not skimpy insurance, and . . . if you raise their co-pays or deductibles, that's not going to adversely affect their health," he said. "There's literally no evidence out there that people are going to suffer."
The Excise Tax: Political Poison?
NY Daily News
By Michael McAuliff
JANUARY 6, 2010The excise tax in the Senate health care bill could be deadly for Democrats in 2010, Connecticut Rep. Joe Courtney argued ahead of today’s White House pow wow on the bill and tomorrow’s Democratic caucus meeting to start merging the Senate and House versions.
His notion was also seconded, at least partially, by Robert Reich.
“This is a pretty challenging area for candidates to go out there and defend,” Courtney said on a conference call today, noting that even though John McCain initially came up with the idea in the White House race, “I don’t think that Republicans are going to give Democrats a free pass on this.”
He added:”The Obama campaign was not bashful at all in going for the throat” on the idea of taxing health care benefits.
“The issue had tremendous potency on the campaign trail in 2008,” Courtney said. “It’s a plan that has great political risks for Democrats.”
The problem, said Courtney, Reich and the Economic Policy Institute, is that the “Cadillac” plans the Senate measure taxes are not really Cadillacs. Often they are simply expensive plans that are expensive only because older, sicker people and small businesses buy them. That means middle and lower-middle class folks and small businesses would end up bearing the brunt of the tax, they argue.
Reich argued that while favoring the Senate health scheme over the House’s would not doom Democrats, it would make them look more out of touch because they’d be taxing regular folk and small businesses, rather than taxing the top 1% of earners as the House plan proposes.
“I think Democrats need to be sensitive that the disparities between wealthy Americans and average working people are growing,” he said, adding that backing the excise tax would be “another indication of a lack of sensitivity to this growing gap.”
The bill negotiators are working on ways to make the excise tax more targeted, sources have told us, but no one on the call thought a good solution could be found. “There’s no comparison,” to taxing the wealthy, Reich said.
Obama Backs Cadillac Tax as Pelosi Faces Discord on Health Bill
Business Week
By Laura Litvan and Kristin Jensen
January 7, 2010Jan. 7 (Bloomberg) -- President Barack Obama is pushing U.S. House Democrats to drop their opposition to a tax on high- end insurance plans as lawmakers try to craft a final health- care measure by early next month, a Democratic aide said.
The president expressed a preference for a Senate proposal to tax so-called Cadillac plans in a meeting yesterday with House Speaker Nancy Pelosi and top party lawmakers, the aide said. The White House meeting came on the eve of a conference call Pelosi plans for noon today with her chamber’s Democrats.
Pelosi is facing resistance as she tries to resolve differences in House and Senate bills that would mark the biggest changes to U.S. health policy in 45 years. The Cadillac tax is opposed by labor unions, which are among the party’s strongest backers, and 190 House Democrats.
“I realize the White House has a timeline they want to meet here, but particularly on the tax issue, there is great potential for blowback,” said Representative Joe Courtney, a Connecticut Democrat who’s helping lead opposition to the tax.
How to pay for the 10-year legislation, whose price tag topped $1 trillion in the House, may be the biggest fight in coming days. The Senate would impose a 40 percent tax on the high-end, employer-provided insurance plans; the House wants a 5.4 percent surtax on couples earning at least $1 million.
‘Stand Tough’
House Democrats say they will also push for a new government insurance program and greater subsidies to help millions of lower-income Americans buy policies. That may mean missing Obama’s push for completion before his State of the Union address, they said.
“If we rush, the Senate will get most of its bad work implemented into law, and I don’t think we should allow that to happen,” said Oregon Representative Peter DeFazio. “We should stand tough on some of these issues.”
With virtually no Republican support for the bill, Pelosi is depending on Democrats to stick together. Both the House and Senate would create online insurance-purchasing exchanges, expand the Medicaid program for the poor and attempt to curb medical costs.
The Senate approved its bill on Dec. 24 with the support of all 58 Democrats and two independents, the exact number needed to overcome Republican delaying tactics. Senate Democrats said that razor-thin vote gives them the upper hand.
Pelosi’s Margin
“It’s going to have to be very close to the Senate package or you can see we won’t get 60 votes,” North Dakota Senator Kent Conrad said in a Bloomberg Television interview.
Still, Pelosi won her Nov. 7 vote with just 220 of the House’s 435 votes, so she can’t afford to lose many members.
Virginia Representative Eric Cantor, the No. 2 House Republican, said in a memo that he’s identified 37 House Democrats who might be persuaded to vote against the bill.
Top Democrats may ask House members to give up the most if the Senate legislation dominates. Among other things, the Congressional Progressive Caucus, a group of more than 80 lawmakers, would probably lose its fight for the so-called public option to compete with private insurers such as Indianapolis-based WellPoint Inc.
“There are components of the House version that must not be dismissed,” Arizona Democrat Raul Grijalva, a caucus leader, said in a Dec. 22 statement. Grijalva said he’d also push for a mandate that employers offer insurance.
Antitrust Exemption
DeFazio wants a House-approved repeal of the insurance industry’s antitrust exemption. Senate leaders kept the exemption to win over Democrat Ben Nelson of Nebraska and Independent Joe Lieberman of Connecticut.
House leaders said they may accept a Senate plan to increase Medicare payroll taxes on high earners. The Senate bill would impose an additional 0.9 percent Medicare tax on individuals who make more than $200,000 a year and on couples earning more than $250,000.
Abortion is also a major issue, as Nelson and other lawmakers seek to ensure federal subsidies to help buy insurance don’t pay for the procedure.
In the House, dozens of abortion-rights supporters voted for the bill after an amendment from Michigan Democrat Bart Stupak while saying they wouldn’t support final legislation with the same language because it might discourage insurers from covering abortions. Some are concerned about a Senate compromise Nelson worked out.
Meeting With Obama
Democratic negotiators have to find a way to appease both liberals and Stupak, who got 63 other Democrats to support his plan and said the Senate language won’t work.
Obama also pushed congressional leaders to come up with stronger subsidy provisions than those in the Senate bill, a House Democratic aide said after a Jan. 5 White House meeting.
The House bill includes $602 billion in affordability credits, compared with $436 billion in tax credits in the Senate plan, according to a comparison provided by House staff.
Lawmakers seeking more changes got ammunition from California Governor Arnold Schwarzenegger, who previously supported an overhaul of the health system.
“It is not reform to push more costs onto states that are already struggling,” Schwarzenegger said yesterday. “Health- care reform, which started as noble and needed legislation, has become a trough of bribes, deals and loopholes.”
--With assistance from William Selway in San Francisco and Ryan J. Donmoyer, Brian Faler, James Rowley, Lizzie O’Leary and Edwin Chen in Washington. Editors: Mark McQuillan, Robin Meszoly
