"Cadillac Tax" Hurts Everyone

Well, the Senate Democrats reached 60 votes yesterday, so they've shut the door on the potential for a Republican filibuster to stall a vote on the health care bill. It looks like a straight-party vote could come as soon as Thursday.

I've avoided writing much about the health care debates so far, but I've got a serious problem with one particular part of the Senate's health plan: the so-called "Cadillac Tax" on high-end health care plans (which the Democrats plan to use to help pay for the higher costs of insuring everyone else).

Why? In essence, the Senate is saying that people who have these "Cadillac" plans have too much health insurance. Now, since those people are paying for their own plans with the money they are making at their jobs, who has the right to tell them that they have purchased "too much"? It's funny that they are using the metaphor of a nice car to categorize those health plans, because this is the same (from a political theory point of view) as saying to someone who owns a literal Cadillac that they have too nice of a car. Why should the rich be allowed to have Cadillacs (or Cadillac health plans) when other people have Hondas or Fords (or the equivalent vehicle-metaphor health coverage)?

I guess those evil rich people (you know, the ones who own business and employ people) just don't deserve their rich cars, big homes, and cushy health plans unless the rest of us can have them too. Never mind that they are purchasing those things from their own funds. Philosophically, this seems like a bad way to justify anything except socialism.

But wait, there's more. In reality, an excise tax on the biggest and best health plans will hurt the middle class more than the rich. Megan McArdle explains:

"Taxing their health care plans is not going to cause the executives to consume less health care; traders earning millions of dollars a year are unlikely to forgo an MRI because it might cost nearly as much as they dropped on wine last Saturday night. You might be able to get their back office folks and the secretaries to cut back a little, but those folks are pretty well paid."

The bottom line is that if you tax the rich (aka - the employers), it will mean higher costs for everyone who works below them. This is the step that the Democrats always forget about. Patricia Murphy takes a deeper look at how this plan to "tax the wealthy" will actually hurt everyone else a lot more:

"Obama said he did not want the tax to hit middle-class families, but when the bill emerged from the Senate Finance Committee in September, it proposed charging insurance companies and a 40 percent excise tax for high-dollar -- but not exactly gold-plated -- plans. The bill now calls for the tax to apply to plans exceeding $8,500 for individuals and $23,000 for families, for the cost of combining health savings accounts, medical, prescription drugs, dental, vision, etc. The tax is charged to insurance companies, but it is widely assumed they would pass it on to employers....

...Beth Umland, the research director for Mercer (an employee benefits consulting firm), explained that although the "Cadillac tax" is targeted at high-dollar plans, the cost of insurance plans is primarily driven by the age, gender, health and location of a company's workers, not the lifestyle they enjoy.

"Plans that trigger the excise tax are not necessarily generous plans," she said. "Small employers offer significantly less-generous plans than large employers, but just as many small employers are going to trigger the tax." Plans for workers in dangerous professions, like steelworkers, also have higher-cost plans because they experience more work-related health problems."

In other words, an excise tax on business owners will be passed down in the form of lower real wages to all the employees. That means that union workers making $40,000 a year (or so) are going to get hit by those costs as well. The Democrats are trying to tax the evil rich people who own businesses, produce things, and create jobs, but they are inadvertently going to skewer the middle and working classes as well. No one wins.

On one hand, it's kind of funny that union members (who played a big role in sweeping the Democrats into power in 2006/08) are now getting screwed by the party they usually support. On the other hand, it's political suicide for the Democrats to alienate one of their major bases of support.

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