By Michael L. Millenson
Welcome, students, to our special combined 9th grade math and civics class. Today, we’re going to look at the “Cadillac tax” in the Affordable Care Act.
Yes, Mitt, you have a question already? No, no, “Cadillac tax” is just an expression. No one is going to tax your family’s cars, Mitt, I promise.
Paul, you also have a question? I’m sorry, Paul, but if you had done the reading, you would know that the “Affordable Care Act” and “Obamacare” are the same thing. And yes, it is still the law, as I must have told you and your friends 40 times. Now can we get on with the class?
As those of you who did do the reading know, most American workers get their health insurance through their employer. The company, in turn, is allowed to deduct the cost of that insurance from its taxes. If the insurance for workers is very generous, it can encourage people to use too much medical care. This not only drives up costs, but we all pay for it a second time through the tax code. The Affordable Care Act addresses that problem by placing an excise tax on rich benefit plans starting in 2018, which is informally known as the “Cadillac tax.”
Economists of all viewpoints generally agree that an open-ended tax deduction for health insurance encourages overconsumption. What do we call that kind of agreement? Michelle?
No, Michelle, I’m afraid, “liberal conspiracy” is not the answer I was looking for. “Bipartisan consensus” was the correct response.
Rand, you seem quite agitated. Yes? “Government intervention in markets is never the right answer.” OK. Well, Rand, let’s talk about that another time and move on from civics to the mathematics part of today’s lesson. We’ll start with a word problem from the New York Times.
The Times quoted a study from a health policy journal as saying that 75 percent of health plans could be affected by the Cadillac tax over the next decade. That’s a big number, isn’t it? And the tax itself is 40 percent – another big number. No wonder the story was on the first page of the Business section.
But here are a few other numbers from the same study: just 16 percent of plans are likely be affected by the tax when it starts in 2018 – a much smaller number. And the “next decade” the study is talking about starts in 2018. What the study actually says is that by 2029 the tax could reduce benefits for affected plans by 3.1 percent. That’s an even smaller number and even further away.
Class, why would the New York Times emphasize the biggest numbers they could find?