When a Tax Is a Tax

The New York Times explains

Reed Abelson deserves a shout-out for her story Sunday detailing how Sen. Max Baucus and his Senate Finance Committee plan to pay for subsidies that the uninsured will need to buy the health insurance they will be required to carry. One quarter of the $774 million (that’s the Baucus version of the total needed) will come from a new, 35-percent excise tax slapped onto insurers selling policies that are expensive and cover lots of stuff. The tax would apply to policies that cost more than $8,000 for individuals and $21,000 for families.

The wonks have convinced the pols that they can raise revenue by taxing high-priced policies—which will in turn discourage insurers from offering them, which will mean that workers will have less coverage for medical care, which will mean that they could be underinsured when serious illness strikes…which will mean they could declare bankruptcy when the stack of bills gets too high.

The policies that the wonks and the pols plan to target are the so-called Cadillac plans purchased by the likes of Goldman Sachs for its employees. The idea is to discourage companies like Goldman from offering too many benefits, based on the theory that if policies don’t cover as much, there will be a few different results: employees will be discouraged from using medical services; the cost of health care—in the aggregate—will go down; and policy wonks will sing hosannas that they’ve bent the cost curve. I dare say that Goldman Sachs employees—especially the ones raking in the bigger bucks that most Americans earn in a lifetime—will be able to pay for whatever medical care they need. So just where is the cost savings going to come from?

The answer: union workers and other middle-class employees who have been fortunate these years to have employers willing to pay for good health coverage. As Abelson points out, plans that unions have negotiated for their workers over the years in lieu of higher wages will be among those the Baucus committee aims to water down. Gosh, I have one of those plans—and pay the entire $12,000 a year myself for one-person, retiree coverage from a former employer—and I hardly have the income of a Goldman bond trader or an arbitrageur.

The Times interviewed Bruce Hodson, a Maine state employee and the president of Local 1989 of the Service Employees International Union, who said the cost of a family plan for his members in Maine is $20,500 a year. (Note! That’s Maine, not New York or Massachusetts—where the cost of medical care pushes premiums way up.) Said Hodson: “We really worked hard to keep the cost down. We’ve given up pay raises for this.” The Kaiser Family Foundation says the average family policy now costs $13, 375—so it appears that Baucus will snag a lot of policies in his net.

This solution, though, seems in step with the president’s goal of no taxes on the middle class—a pledge he repeated again on Sunday. It’s true that the middle class won’t technically pay the tax—insurers will. But carriers will almost certainly pass along the tax to ordinary folks in the form of higher premiums. What was that about affordable health care, which they’ve been promised by everyone from the president on down? What will these increases mean for the affordable coverage the public has been led to believe reform will bring? It’s the old health care balloon adage: you can control costs by pushing down on one place, but they’ll just pop up in another.

Reducing health coverage reinforces a trend that surfaced a few years go—forcing consumers to bear more of the cost of their medical care. That, in turn, has caused a rise in the underinsured—people who have insurance but still must pay huge amounts for medical services out of pocket. It also keeps aflame that notion of health care consumerism—making deductibles and coinsurance so high that they will force people to make choices. Do they want to spend their own money to see a doctor, opt for cheaper care, or use it for other pressing household needs?

Shoving more costs onto patients benefits the politicians and keeps the world safe for doctors, who contribute mightily to the high cost of health care through the drugs, tests, and treatments they prescribe. Those doctors also contribute mightily to politicians. With middle-class people paying some of the freight, the pols won’t have to enact real cost containment measures that would control the price of medical services through global budgets and other means, and doctors will escape from this round of reform without the fee cuts that Congress once had mandated for them. It’s a lot easier to deal with disorganized patients who may not realize what could befall them than to say ‘no’ to the docs who have given them a lot of campaign dough.

Last year The Commonwealth Fund found that some 25 million people were underinsured; that is, they spent more than 10 percent of their income on medical expenses even though they had health insurance. Underinsured families with low incomes are spending five percent of their income on out-of-pocket costs. When The Commonwealth Fund released its report last year, the press picked up the story, and, for a while, the notion of underinsurance floated around. Those stories still need to be told. And that’s especially so now that Congress seems to be willing to trade off more underinsured Americans for more insured Americans who have a policy—however skimpy it may be. It would be great if the media looked into the equities of all this.

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Trudy Lieberman is a longtime contributing editor to the Columbia Journalism Review. She is the lead writer for The Second Opinion, CJR's healthcare desk, which is part of our United States Project on the coverage of politics and policy. She also blogs for Health News Review. Follow her on Twitter @Trudy_Lieberman.