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Source: University of California, Berkeley
Unions have led the fight against the proposed "Cadillac tax" on high-cost health benefits. And when union leaders, including CWA President Larry Cohen, negotiated adjustments in the tax with the White House opponents of health reform depicted the agreed-upon changes as a sweetheart deal for unions.
For example, Fox News said, "Democratic leaders are once again drawing fire from their critics for extending special treatment to an interest group in exchange for its support of the bill. The latest deal was struck Thursday among the White House, Congress and union leaders over the proposed tax on high-value 'Cadillac' health insurance plans."
As with many issues involving health reform, the reality doesn't match the hype.
The so-called "Cadillac tax" as included in the Senate-passed health reform bill would hit millions of workers, 80 percent of whom are not represented by unions, according to a study released today by the Center for Labor Research and Education at the University of California, Berkeley. And under the proposed amendment negotiated by the union leaders with the White House, 83 percent of those affected would be non-union, the study estimates.
Moreover, most of the savings from the union-White House agreement – 71% – would go to non-union workers, according to the study.
Estimates were based primarily on the Kaiser Family Foundation annual survey of employers about health costs. The employers not only report on costs and benefits, but indicate whether their employees are covered by union contracts.
The authors are Ken Jacobs, William H. Dow, Dave Graham-Squire and Laurel Tan. Jacobs is chair of the Center for Labor Research and Education. Dow, a health economist, was a senior economist for President George W. Bush’s Council of Economic Advisers.
– 02/18/10
Supporters of the tax on high-premium health benefits said it would lower health costs. Here's how it's supposed to work, they said: Employers will cut benefits to avoid the tax, meaning higher out-of-pocket costs for workers; to avoid paying those costs, the workers would cut out unnecessary doctor visits, saving costs for the system.
A new study in this week's New England Journal of Medicine adds more evidence that the theory of cost savings through higher out-of-pocket costs isn't true.
The study tracks Medicare health plans, such as HMOs, that increased the co-pay for doctor visits. It compared records of more than 800,000 patients - some in health plans that raised co-pays, some in similar plans that kept co-pays level. Those facing higher co-pays did, in fact, make fewer doctor visits - but they ended up needing more hospital care, driving overall costs up.
By raising co-payments, the study estimated, health insurers collected an additional $5,950 in co-pays from each 100 patients, and fewer doctor visits saved another $1,200 for the insurance company, for a total apparent saving of $7,150. But those 100 patients, on average, generated an extra two hospital admissions and 13 days of hospital care, for an added cost of $24,000 - more than three times as much as was "saved."
The results are consistent with other research showing that higher co-payments can lead to more hospitalizations when patients defer needed preventive care.
Why does this matter? As Congress considers how to move forward with health reform, the Senate's health reform bill would tax high-premium benefits, the House's bill wouldn't. Some are suggesting the House should pass the Senate's bill. CWA thinks that's the wrong way to go because the benefits tax is misguided policy.
– 01/29/10
After many hours of negotiations with the White House and Congressional leaders - and continued pressure from our members - CWA President Larry Cohen and other labor leaders have been able to negotiate significant improvements in the proposed tax on high-cost health benefits.
"This is not the plan we would have written if we were the sole author, but just like contract negotiations there is another side to the table. And in this case there are three other sides: the House, the Senate and the White House," CWA leadership said in a statement. "We are proud that the improvements we negotiated protect both union members and members of the public. Labor unions have a long history of protecting all workers and this is another great example.
"More than any other union, CWA's leadership has really pushed this issue in the mainstream and online media, on Capitol Hill, and in building coalitions to help deliver the message that there's a better way to finance health care reform," the statement continued. "Our members mobilized. We made tens of thousands of calls and visits to the House and Senate. We should all be proud of what we have accomplished here."
The job, however, isn't finished. We need to see the agreement into final legislative language, which must be passed by both the House and Senate.
Improvements include:
- A delay until 2018 on applying the tax to collectively-bargained plans, allowing time to bargain for changes in benefits and wages.
- A higher premium level before the tax kicks in ($24,000 for family coverage, compared to $23,000 in the Senate bill).
- Exemption of dental and vision benefits, effectively raising the threshold by another $1,500.
- Agreement that the threshold will be pushed up further if health costs rise faster than expected.
- Adjusting the threshold for plans with large numbers of women and older workers - people for whom premiums are higher because they use more care. Also, the agreement preserves Senate-passed protections for plans that cover workers in high-risk occupations and for plans that cover retirees between the ages of 55 and 65 - two other groups with higher-than-average premiums.
– 01/15/10
President Obama told labor leaders yesterday that he wants some form of tax on high-cost health benefits in the final health reform bill, but "he also signaled that he was willing to amend the proposal to 'make this work for working families,' " according to an administration official quoted by the New York Times.
CWA President Larry Cohen was among a dozen labor leaders who met with the president at the White House to press the case against the benefits tax.
"Mr. Obama and the union officials used Monday's session to search for a sort of compromise, said a union leader who was briefed on the discussion," the Times said. "This official, who said the tone of the meeting was friendly, said it was clear that there would be some sort of excise tax in the final bill, but that the president 'threw out some new concepts' in how it might be designed."
Earlier in the day, Richard Trumka, president of the AFL-CIO, had warned in a speech that the benefits tax could make union members less enthusiastic in supporting Democrats in upcoming elections.
Our pressure has helped create flexibility on the benefits tax. As the issue heads for a resolution in the next few weeks - possibly even in the next few days - we need to step up that pressure. The AFL-CIO is leading a national phone-in day tomorrow (Wednesday). Call 1-877-3-AFL-CIO (1-877-323-5246). Callers will to connected to their Congressional representatives so they can tell Congress we need health reform that:
- Does not tax our health care benefits;
- Requires employers to pay their fair share; and
- Reduces cost--the best way to do this is with a public health care option.
– 01/12/10
Members of the House of Representatives and independent experts continue to challenge the assumptions behind a proposed tax on benefits, according to recent press reports.
The Senate's version of the health reform bill includes a tax on high-premium health plans. The House's reform bill instead increases taxes on the highest-income earners with a so-called "millionaire's tax." The House and Senate are now attempting to work out a compromise bill, and the White House has supported including the benefits tax in the final bill.
"Health analysts recently questioned the assumption that the tax would target only the most lavish insurance packages, nicknamed 'Cadillac plans,' " the Washington Post reported. The Post cites research showing that many health plans have high premiums not because the benefits are lavish but because they cover older and sicker workers or serve regions with high health costs.
The Post also reports that some health economists do not believe that higher co-pays and deductibles - which would result when plans cut benefits to avoid the tax - will lead consumers to make smarter decisions about what care they really need. "None of these proponents has ever shown that patients are even capable of evaluating the clinical merits" of different treatment recommended by doctors, Uwe Reinhardt, a health economist at Princeton, told the Post.
And House Democrats continue to fight against the benefits tax, according to the New York Times.
"Representative Carol Shea-Porter, Democrat of New Hampshire, who spoke out forcefully against the proposed excise tax, said afterward that it could hurt middle class families," the Times said.
" 'I was standing up for my constituents,' she said in a statement. 'I have serious concerns about the excise tax proposal and the effect that it could have on middle class families in New Hampshire and across the country.' "
– 01/08/10
The people who like the idea of taxing benefits tell us not to worry - if our benefits are cut to avoid the tax, our wages will go up to make up for it. That sounds improbable on its face: If our boss can save, say, $3,000 on health premiums, is he going to turn around and hand us a $3,000 raise?
A new report from the Economic Policy Institute (EPI), released today, shows in data what many of us felt intuitively. Tracking wage rates and health costs from 1989 to the present, the EPI report concludes that "the trajectory of health care costs did not materially affect wage trends."
As for the idea that a tax on benefits could lead to significantly higher pay, "In no way can you expect this is going to lead to great wage growth," said Lawrence Mishel, president of the Economic Policy Institute and author of the report. Mishel spoke at a press briefing this morning.
Also at the briefing, Robert Reich, former secretary of labor and now professor at University of California at Berkeley, said taxing high-cost benefits could lead to "a real chance that many working families will be forced to cut back on the health care they need, thus defeating the entire purpose of health reform."
And Congressman Joe Courtney, a Connecticut Democrat who is leading the fight against the benefits tax, said the tax is "a plan that has great political risk for the Democrats." When taxing benefits was proposed by John McCain, he said, "the issue had tremendous potency on the campaign trail in 2008," and a number of recent public polls show 2-to-1 opposition to the tax among voters.
The benefits tax is included in the health reform bill passed by the Senate. The House of Representatives would finance reform instead by a "millionaire's tax" on the highest earners. CWA is asking members to write to Congress, urging support for the House version.
– 01/06/10
Analysts are stepping up attacks ona the flaws in the tax on health benefits contained in the health reform bill passed by the Senate on Christmas Eve.
The debate is important as Congress prepares to convene a conference committee to work out differences between the Senate and House reform legislation. The House's bill doesn't tax benefits; instead, it finances reform by increasing the income tax for households making more than $1 million a year and for individuals making more than $500,000. CWA is asking us to write to Congress, calling for health care reform that doesn't tax benefits.
While the benefits tax is depicted as aimed at rich "Cadillac" benefits, "In fact, it's a tax that in a few years will hammer millions of middle-class policyholders, forcing them to scale back their access to medical care," writes New York Times columnist Bob Herbert.
The result of the tax, Herbert continues, would be "lower-value plans" with "higher out-of-pocket costs, thus increasing the very things that are so maddening to so many policyholders right now: higher and higher co-payments, soaring deductibles and so forth. Some of the benefits of higher-end policies can be expected in many cases to go by the boards: dental and vision care, for example, and expensive mental health coverage."
Studies show that the tax on high-premium plans wouldn't hit plans with rich benefits as much as normal coverage - such as that bargained for many CWA members - where workers happen to be older or living in an area where medical costs are high.
"I consider it ill-considered and unfair, a tax on people stuck in expensive plans because they belong to groups with older and sicker beneficiaries who use more health services; small groups generally; or who live in areas with expensive delivery systems. The idea that taxing those plans will somehow encourage people to reduce their utilization is wishful thinking that ignores who actually makes health care decisions - doctors, hospitals, drug companies, and other providers," writes analyst Merrill Goozner.
Supporters of the benefits tax say it will force insurance companies to hold down premiums to avoid the tax. But "there is no evidence that insurance companies can control costs better just by trying harder. The excise tax would not give insurers more bargaining power in dealing with hospitals, doctors and drug companies. It would not create new innovations in delivery systems. It would not generate credible evidence to 'manage' care," two professors who are experts on health law and policy, Timothy S. Jost and Joseph White, write in Roll Call.
Health blogger Maggie Maher offers a 'truth squad' review of the pro-and-con arguments.
Maher points out that "chronically ill patients don't make the decisions on big ticket items such as surgery, hospitalization, a battery of expensive tests, or a drug that costs $50,000 a year. Doctors and hospitals tell them what they must have to survive. Co-pays and deductibles will not make these patients more 'cost-conscious.' Cost-sharing will only give a distraught stroke victim another reason to worry."
Maher summarizes, "The problem is not that premiums are sky-high because insurance plans are too generous. Premiums only reflect the problem at the center of a healthcare system spiraling out of control: over-use of over-priced medical technologies, leading to run-away healthcare inflation."
– 01/04/10
Communications Workers of America, American Benefits Council, and other organizations ask Congress not to tax valuable supplemental benefits
The Communications Workers of America (CWA) and American Benefits Council, along with the Academy of General Dentistry, American College of Prosthodontists, American Academy of Pediatric Dentistry, American Association of Oral and Maxillofacial Surgeons, American Dental Association, Guardian Life Insurance of America, Service Employees International Union, Vision Service Plans, and National Association of Vision Care Plans, sent a letter yesterday calling on Congress to eliminate or substantially modify the proposed excise tax on health benefits, including FSAs, to ensure it does not adversely impact key and important goals of health reform, like primary and prevention oriented care.
The letter states "The Patient Protection and Affordable Care Act establishes an excise tax of 40 percent on health plan and flexible spending account (FSA) costs that exceed $8,500 for single coverage and $23,000 for family coverage. Many employer-sponsored health plans are likely to exceed these thresholds simply because they include many older workers or retirees with higher cost health care needs, or because they are concentrated in locations with high health costs. As a result, rather than controlling medical services cost growth, many employers would be compelled to reduce benefits (Mercer Survey, 12/2/2009). This policy could lead employers to cut limited service supplemental benefits and FSAs that fund much-needed and prevention oriented dental, vision and limited service supplemental plans in order to avoid the tax."
"The stand-alone, supplemental plans already exhibit the cost effective qualities missing from many medical plans, such as slower growth in premium costs over time. For example, on a cumulative basis from 2000 to 2009, the monthly premium of a dental plan for an employee-only dental plan has increased 29.9% [1] whereas the cumulative cost of employee-only health coverage has increased 95.2%. [2], " according to the letter authors.
"The health care reform debate has never centered on dental, vision and other supplemental benefits. Those valuable benefits have only been included in the calculation of the excise tax to raise revenue. Several modifications are needed to improve the excise tax provision, including not applying the tax to these important supplemental benefits," said James A. Klein, president of the American Benefits Council.
The letter states, "For millions of patients and consumers, most of whom are middle and low income working Americans, the excise tax is unfair and punitive, leading to reduced preventive, primary care services.
"The excise tax is the opposite of health care reform. By compelling employers to drop critical coverage like dental and vision plans to avoid the tax, it dismantles basic building blocks of employer-based health coverage," Louise Novotny, CWA's Director of Development and Research, said today. "There are approaches that would not be so disruptive, including increasing the indexing factors and thresholds, or adopting the financing included in House version of the bill."
Without Congressional consensus to replace the excise tax on health benefits with another fair and broad funding source, there are solutions that can mitigate the severe harm the excise tax poses to patient care. These include:
1) Excluding FSAs, as well as managed and limited service dental, vision and stand-alone plans from the calculation of health plan costs;
2) Raising the threshold AND index the threshold to medical inflation;
3) Replacing the single and family coverage thresholds with a per-covered-person threshold, a fairer approach to plan cost allocation. [2]
[1] Dental Benefits Reports: Premium Trends--2001-2009; National Association of Dental Plans, Dallas, Texas
[2] The number of dependents enrolled in a plan's family coverage varies, plans with larger numbers of dependents are unfairly taxed even when the per enrolled person cost reflect efficient benefits.
– 12/18/09
Labor has been fighting against proposals to tax health benefits as income. A CWA study, conducted after John McCain campaigned on the idea of fully taxing health benefits, showed that such a policy could cost a typical CWA member as much as $48,000 in extra taxes over ten years.
Others, including some Democrats, have looked to partial taxing of health benefits to help finance health reform.
But it isn’t just workers who would have to pay those extra income and payroll taxes. Business would have to shell out, too – and business doesn’t like the idea any more than labor does.
The National Business Group on Health, which represents 300 large employers – including 60 of the 100 largest in the country – last week issued the following statement:
"With our nation reeling from the worst economy in generations, the idea that now is the time to increase taxes on 161 million American workers' health benefits boggles the mind.
"We have serious concerns that modifying the tax exclusion of health benefits could have the unintended consequence of driving the cost of health benefits higher and potentially force businesses and/or workers to drop private coverage altogether. In particular, modifying the tax exclusion for health benefits could have a disproportionate impact on older workers and Americans residing in states with comparatively low costs of living or more efficient health care systems.
"As a vocal and steadfast advocate of comprehensive national health care reform, NBGH strongly supports bipartisan efforts to expand coverage to all Americans and make the hard choices around delivery system and payment reforms that would eliminate the hundreds of billions of dollars spent annually on care that is wasteful, duplicative, and even harmful.
– 05/22/09
