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Tag: Policy

The Case for Taxing “Cadillac” Healthcare Coverage

With President Obama’s plan for healthcare reform recently being dealt a tough blow by the Congressional Budget Office over soaring federal deficit projections, I am beginning to wonder if it is time for the President to modify his stance against taxing “Cadillac” healthcare coverage offered by employers.  It’s no secret what Senator Max Baucus, the Democratic Chairman of the Senate Finance Committee and one of the most powerful people in the healthcare reform debate, thinks President Obama should do.  Senator Baucus has been a vocal advocate of taxing healthcare benefits.  He recently told reporters that taxing employer-sponsored benefits is “the best way to raise money for an overhaul of the healthcare system.”  He has also been somewhat critical of President Obama’s decision to not tax healthcare benefits by saying, “Basically, the president is not helping us.”

In recent days, the Congressional Budget Office (CBO) estimated that the House Democratic legislation would add more than $230 billion to the federal budget deficit.  On the Senate side, Senator Baucus, who has been working with Senate leaders to formulate another plan, has pointed out the difficulties his committee has had with funding reform without some other type of significant revenue.

One way that raises enough revenue to cover well over the $230 billion figure projected by the CBO is through taxing employer-sponsored health benefits.  The nonpartisan Joint Committee on Taxation estimates that taxing employer-sponsored benefits above the value of the Federal Employees Health Benefits Plan (FEHBP), adjusted for inflation, would generate nearly $420 billion over the next 10 years, which would easily fund the difference in the budget gap.  Many other estimates place this number considerably higher.  Furthermore, many experts believe that this policy is a key way to reduce costs, because tax-free benefits encourage more spending on health care.

About 18 months ago, as I worked with a committee that I chaired in Tennessee called the Rolling Hills Group to create a structural model for national healthcare reform, I ran into the same problem that President Obama is facing today.  How do you pay for reform?  After considering several options on how to finance universal insurance, our group kept coming back to the same, single solution – the same one that Senator Baucus is a proponent of, taxing “Cadillac” healthcare benefits.

Under our proposal, we created a basic level of coverage similar to what members of Congress are offered today, known as the FEHBP standard option plan.  This plan is very generous and has been successful in holding down costs compared to other plans.  In order to make sure our plan was budget neutral, we decided we would no longer allow what we consider “Cadillac” coverage benefits to be tax free.  For example, in 2009, under our proposal, any individual policy worth more than $5,871.84 or any family policy worth more than $13,445.64 would be subject to a tax.  Anything less than this amount would be tax free.  For individuals, any amount above the base value of the plan would be considered income.  While for companies, any amount above the base value of the plan would no longer be deductible as a business expense.

We had this idea vetted by the Moran Company, who said that our plan is actuarially sound and budget neutral for the federal government once fully phased in.  Just as a note, in our plan we also derive revenue from Disproportionate Share Payments (DSH) and hold down up front costs by phasing in the reform over a 10 year period.  Disproportionate Share Payments is funding that hospitals receive for treating indigent populations.  Thus, it is reasonable to decrease DSH payments as the uninsured population decreases.

If taxing “Cadillac” coverage raises enough revenue to make healthcare reform budget neutral and encourages less spending on healthcare, why has such an attractive option for reform been pulled off the table amidst the President’s insistence on urgency?  As is usually the case with healthcare reform, the answer may be in the politics.

In recent weeks, several articles have outlined strong opposition by labor unions to the taxation of their healthcare benefits. In the Washington Post, the AFL-CIO stated its opposition to taxing “Cadillac” coverage.  Michael Sullivan, the President of the Sheet Metal Workers Union, has also adamantly stated his opposition to taxing healthcare benefits by saying, “Any bill that taxes health care benefits is dead on arrival.” Understanding these political difficulties, but still seeing the taxing of benefits as a viable way forward, lawmakers have demonstrated that there may be room for compromise.  Senator Baucus himself has hinted that he might consider grandfathering in the taxation of health benefits that are part of a collective-bargaining agreement, which would allow union plans to remain tax-free until new contracts can be negotiated.

Labor unions are not the only ones who have come out against the taxation of “Cadillac” plans, as many large corporations have exhibited significant opposition as well.  However, if healthcare reform is going to happen this year, Congress and President Obama may want to take a harder look at taxing “Cadillac” healthcare benefits as a means of raising revenue and achieving their other healthcare priorities.  I think it is fair to say that if Obama explains to the American people that the Government is only going tax the most lavish of benefits, he might find greater support from the American public for the change in health care that he promised to bring and that this nation so desperately needs.

Clayton McWhorter is a former President and chairman of HCA and current chairman of Clayton Associates and the Rolling Hills Group.  He is the founder of the group SHOUTAmerica, a Nashville based organization that uses social networking and other internet-based technologies to push for change in the healthcare system.

Say we get some sausage–then what?

sausage (sô´sǐj)
n. A highly seasoned minced meat usually stuffed in casings of prepared
animal intestine.

MPainter

Congress is obviously in the thick of the sausage making. The August recess is pending. Bills may or may not be moving. The legislative process, especially at this point, is not particularly pretty or, to be honest, as thoughtful as we all might hope. It is the process, though, right? There was essentially no way around something like this intestine stuffing, especially in an effort to fix health care–such a large sector of the American economy. And in spite of the messy work and depending on the day, the observer and the poll, it nevertheless seems likely that something will come out of the kitchen, right? It is also probably safe to say, though, that any reform law is not going to be the panacea–the ultimate health and health care fix. Instead, if a law indeed passes, it's clear that we're going to spend the next five, 10, 15 years adjusting, backtracking, redesigning and working toward better care. In other words, the implementation is going to matter, and it's going to matter a lot. On July 30 in Washington, D.C. at the Hart Senate Office Building, the RWJF-funded High-Value Health Care Project led by Mark McClellan of the Engelberg Center at Brookings hosted a panel discussion focused on just that–the implementation. Specifically, Mark, Carolyn Clancy of AHRQ, John Tooker of the American College of Physicians, Steve Findlay of the Consumers Union and Jim Chase of Minnesota Community Measurement talked to a large Capitol Hill audience about what it will take to make health care deliver sustainable high value. 

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Two rules by which to judge a health reform bill

Right now we have sausage-making going on in DC and lots of uninformed opinions and outright lies being strewn across the front pages and on cable from newly declared experts. I sat in an airport last night and heard 5 Wall Street pundits spewing rubbish about health reform on one cable show. It even included an aging upper-class British twit declaring that government health care was more expensive than private systems. Clearly he’d managed to miss comparing the 8% of GDP his (and my) original homeland spends on health care versus the 17% we spend here. Later on CNN had 4 random people including Christine Hefner—yes one of those Hefners—talking about it. I suspect that if you know something about health care and your name’s not Michael Cannon you’re just not allowed on cable TV.

But all the hot air aside, even those of us in the punditocracy who know something about the subject matter (i.e. anyone reading THCB) seem to be so deep in the weeds that we have lost the basics about what we should be looking for from a health care bill. So it’s time to make that very clear, and here in my not so humble opinion are the rules by which to judge reform.

Rule 1 A health care reform bill needs to guarantee that no
one should find themselves unable to get care simply because they
cannot afford it. Neither should anyone find themselves financially
compromised (or worse) because they have received care.

Rule 2 A health care reform bill needs to limit the amount of
GDP that is going to health care to its current level, with an overall
aim of reducing the share of health care going to GDP.

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A Health Insurance Premium Tax Would be a Chicken Tax

The Congress has looked at taxing about everyone and everything to pay for half the cost of a health care bill.

They’ve considered sugary soft drinks, beer, “millionaires,” and “gold plated” health benefits to name a few. Every time they come up with one it gets shot down by the interests it would offend.First, as I have asked on this blog before, why do we need to use at least $500 billion in new taxes to pay for half the cost of a health care entitlement expansion bill? We will spend somewhere between $35 trillion and $40 trillion on health care in this country over the next ten years. Many experts contend there is as much as 30% waste in what we spend.Advocates of a health care bill say we need it to reduce the cost of health care in this country that will otherwise bankrupt us if we don’t fix it.

With as much as $10 trillion to $12 trillion in waste, and cost containment as the stated goal, why do we need to raise people’s taxes $500 billion to pay for an expansion of coverage?But since it is clear that the Congress and the White House have all but given up on real health care reform that would really “bend the curve” they are adamant they are going to raise taxes to pay for at least half the cost.

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Live from Aspen: the moderates’ view on Obama health reform

6a00d8341c909d53ef0105371fd47b970b-320wi Paul Krugman’s article today excoriates the Blue Dogs and a former dog Billy Tauzin in particular. He also (as I did a week or so back) wonders where the Dogs were when the Bush tax cuts were bumping the deficit more than the proposed health reform bill will and redistributing wealth from future poorer taxpayers to the very rich in the process.

Funnily enough I’ve been at the Aspen Health Forum where the self-same Billy Tauzin used his not inconsiderable Cajun charm and a dollop of PhRMA’s money to buy me (and a bunch of others) a whisky and a s’more on Saturday night, and took part in a couple of panels I watched on Sunday. We had a couple of brief chats, one about his cancer treatment and another about getting big Pharma to behave better. He claims some progress there (voluntary restrictions on DTC, better posting of clinical trial data, reductions in marketing excess to docs). I suggested that there was more progress required both in pricing policy and PR. He said it was hard, I told him that was why they paid him the big bucks.

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Costs v Coverage: Krugman gets it–Brooks is almost quite close

So Paul Krugman, the NY Times Nobel Prize winning lefty columnist, says this (and echoes what I’ve been saying for a while)

So where in America is there serious consideration of moving away from fee-for-service to a more comprehensive, integrated approach to health care? The answer is: Massachusetts — which introduced a health-care plan three years ago that was, in some respects, a dress rehearsal for national health reform, and is now looking for ways to help control costs.

Why does meaningful action on medical costs go along with compassion? One answer is that compassion means not closing your eyes to the human consequences of rising costs. When health insurance premiums doubled during the Bush years, our health care system “controlled costs” by dropping coverage for many workers — but as far as the Bush administration was concerned, that wasn’t a problem. If you believe in universal coverage, on the other hand, it is a problem, and demands a solution.

So universal coverage systems find that they can’t just let the health care system increase costs because there is no safety valve of the uninsured to dump out of the system. We’re all in it.

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Rantology: Sympathy for the blue devils?

6a00d8341c909d53ef0105371fd47b970b-320wi I do have some vague sympathy for the Blue Dogs, the group of mostly red-state Democrats who have to pretend that they care about fiscal responsibility. They, like me, think that we shouldn’t be increasing taxes on the non-health sector to pay for universal coverage. Unlike me they think that we should be reducing any commitment to universal coverage by reducing the level at which subsidies for people mandated to buy health care coverage cut off—which will leave us in a situation with lots of people who forgo coverage because they can’t afford it. I of course think that we should be finding the money to cover the uninsured from within the 16% of GDP we already spend on health care and then ratchet that overall number down, but then again I don’t have to get elected to Congress.

But I do have one modest question. Where were the dogs/devils’ concerns about the deficit when George Bush was borrowing for the future to pay for income and dividend tax rebates for the very wealthy, by invading Iraq and hiding the accounting, and by creating the boondoggle that was the Medicare Modernization Act. Now it’s late at night and I’m not going to go chasing voting records from 2001–3. But I sure have my guess….

More on the politics of health care reform:

Health “reform”: Lest we forget…

6a00d8341c909d53ef0105371fd47b970b-320wi There’s been a lot of hand-wringing and b.s. discussed about the comparatively minor health reform that’s snaking its way through Congress. And when I say comparatively minor I mean it. Mostly because there’s lots this legislation doesn’t do.

1) There’s no significant reform of how we pay for health care—even though Orszag, Obama et al want it, and maybe Rockerfeller will inject the “MedPAC as Federal Health Board” into the end result….but I doubt it.

2) There’s no significant change in how we raise money for health care. Employment-based insurance stays as it is. Medicare and Medicaid basically stay as they are. Even if there are NO revenue sources for extending care to the uninsured, it’s still only a roughly a 5% increase in the cost of health care. If you hadn’t noticed we get that increase every year anyway! (By the way CBO actually scores the economics as being significantly better than that).

3) There’s no significant tax increase. Well the apologists say so, but the proposed tax increase on very high earners is trivial compared to how well they’ve done in the last twenty years. The chart below shows the share of overall earnings since the 1980s.

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Why Congress Should Consider Bob Laszewski’s Health Care Affordability Model

ALP_H_BK_0010 Over the last few months, I have become increasingly disheartened over the prospects for meaningful health care reform.

First, the process is terribly conflicted, and it shows. In the first quarter of 2009, the Center for Responsive Politics reported that the health care industry contributed $128 million to Congress. Now that the tide has turned, this has gone mostly to Democrats who, as it turns out, are just as receptive as their Republican predecessors.

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The Affordability Model

Capital_2Most health care experts agree the reason our system is so
unaffordable is because of all of the waste  and unnecessary care—up to
30% of what we spend.I will suggest that it will take the
genius of individual creativity to separate the 70% of this health care
system that is the best in the world from the 30% that is waste.So
far, the Congress has focused more on entitlement expansion then
fundamentally reforming the system and tackling the real
problem—getting all the excess costs out. The result so far is
expensive health care proposals and no real reform.How can we actually make the health care system affordable as we expand coverage? I will suggest a three-pronged attack:

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