Senator Baucus Declares War on the Middle Class
Remember what Barack Obama said about Hillary Clinton’s health plan? “Hillary’s health care plan forces everyone to buy insurance, even if you can’t afford it…and you pay a penalty if you don’t.” Well, that idea is back.
Welcome to Obama Care ala Max Baucus. The specifics of the bill are apparently changing hourly and there are 564 amendments being proposed. However, the core features are likely to remain intact. Like other versions of the health reform before Congress, this bill will:
- Require every American to buy a health insurance plan that will be designed in Washington and (through time) be shaped and molded by special interest pressures or pay a hefty tax.
- Subsidize health insurance for young people by taking about $500 billion away from Medicare and Medicaid.
- Cause several million (mostly moderate-income) seniors to lose their coverage under Medicare Advantage.
- Cause millions of families to move from private coverage (which allows them to see a broad array of doctors) to Medicaid and S-CHIP programs (where health care access is much more limited).
- Cause millions of American families to lose their current private coverage and obtain insurance in an artificial market (an Exchange), where insurers will have perverse incentives to underprovide to the sickest patients.
- Nationalize the private health insurance marketplace by effectively outlawing a real market for health care risks.
But unlike the other bills, this bill has two additional harsh features:
Modern Times
- A 35% tax on private health insurance — initially targeting “Cadillac” plans, but eventually reaching all plans.
- An employer play-or-pay mandate that is effectively an implicit tax as high as 26% or more on the wages of middle-income workers.
The 35% excise tax on insurance will be applied to the amount by which the cost of the insurance exceeds $8,000 (individuals) or $21,000 (families). However, these thresholds are indexed to the consumer price index (CPI), not the medical price index (MPI). Since the CPI grows at about one-third the rate of the MPI, eventually all insurance will exceed the cap and be subject to the tax. The Joint Economic Committee Republican staff has calculated that two of the individual plans currently sold to federal employees, for example, would be immediately taxed. After 10 years, 11 of the 17 (FEHBP) individual plans would be subject to taxation and 6 of 17 family plans — including the most popular plan (Blue Cross Blue Shield Standard Option) in both cases.
Even more disconcerting is the implicit tax on middle-income workers created by the employer play-or-pay mandate. Take an employee earning $50,000 a year and suppose “credible coverage” offered through an employer costs $13,000 for a family. Under Baucus, the maximum premium the employee can be charged is 13% of income, or $6,500. So the employer must pay the remaining $6,500.
But since fringe benefits are a substitute for wages, the employer’s annual $6,500 premium payment would come out of the wages that otherwise would have been paid. Under the Baucus bill, the employer does not have to provide insurance. But if the employer does not, the employee must obtain this insurance in the Exchange and the government will provide the $6,500. However, (and this is where Baucus differs from the other bills) the employer will be “fined” $6,500 anyway. So no matter where the employee gets his insurance he will still pay the full cost — part directly (out of pocket), and part in reduced wages.
The implicit health insurance tax this worker must shoulder is 26% of income!
Of course, it’s only in the long run that the cost of fringe benefits comes out of the pockets of workers. In the short run the employer may find it impossible or impractical to reduce wages by that amount. So for the near term, the employer faces a $6,500 annual tax for continuing to employ this worker and hiring others just like him. Massive unemployment is a predictable result.
Now, here is one more surprise. Imagine this worker’s income is lower and that he can qualify for Medicaid. In this case, if the employer fails to provide insurance, there is no fine. In other words, employers face no additional cost if they hire the poor, but they get really soaked if they hire the middle class!
What do you want to bet that the more they amend it, the worse it will get.
I like the video. Good pairing.
Notice how far we have come. During the election, this was all gong to be paid for by taxing the rich. Now it will all be paid for by screwing the middle class.
Thanks for pointing this out, John. Haven’t seen this elsewhere.
I don’t know about large company plans, but small business plans all seem to be age-banded. So any coverage available to an employee above the age of 55 or 60 will be, by this definition, a Cadillac plan. But for young employees, the $8K limit would have zero effect as an incentive.
Bart: This is yet another example of discrimination against the elderly.
Thank goodness for this proposal. I was wondering what I was going to do with all the extra money I have lying around. Finally an answer! Hail to the chief!
Thank you for the succinct analysis of the proposed health care legislation ala Max Baucus.
How could any half way intelligent American support legislation that would clearly put greater financial and bureaucratic burdens on employers, plus reduce benefits for senior citizens, plus increase taxes for middle class Americans. Honestly, “wheres the beef”? There is no virtue in the proposed health care reform details.
We must not stand quietly by while a one tracked Democrat party seeks to grab incredible power and control as an apparent end in itself. They have “the votes” so they figure they better “get” while the “getting is good”. The proposed bill does not serve the best interests of America. Stop BIG GOVERNMENT NOW.
Freedom Writer
One change this morning: Senator Baucus increased the tax rate on “Cadillac plans” (coverage in excess of $8,000/$21,000) from 35% to 40%.
This change was made in exchange for indexing the tax to the CPI plus 1% (instead of the original plan to index it to CPI alone).
So if I understand this plan correctly, it will reduce government medical benefits for the elderly, who have the greatest need them, so that it can give more benefits to the young, who have the least need for them. Just what is the point of that part of the plan? I don’t understand it on any level. Economically, it seems to reallocate resources in a clearly suboptimal manner. Politically, it offends the elderly, who vote, to satisfy the young, who do not vote. Would someone enlighten me on the motivation for this seemingly insane idea? I am at a total loss to understand it.
Here is an interesting video on the proposed health care plan. It highlights some of the media coverage surrounding the ‘cadillac tax’ http://www.newsy.com/videos/cadillac_tax_raises_some_eyebrows
The other question is, does this Cadillac tax apply to all insurance, whether employer-sponsored or individually purchased? I’m just trying to picture this with the employer tax exclusion as a backdrop.
It’s just going to get more and more screwed up, like trying to unravel string by tugging at it! They need to scrap everything and start from scratch.
John-great stuff!
Here’s the problem: Nobody really cares about health reform.
Liberals sabotage the market so that single-payer is the only survivor. Conservatives sabotage the market to protect their insurance-company contributors.
Goodman makes statements just as goofy as Obama’s “cherry-picking” and “pre-existing conditions” nonsense, to a fawning audience of the ill-informed.
There is no subsidy of young people and what a poor argument anyhow. Wait til Obama’s young supporters — many of who opt out of helth insurance by choice — figure out that their idol will (a) force them to buy comprehensive coverage, (b) at rates 2-4 times higher than today.
If conservatives were defending a free market, then they’d be showing how to
(a) cut healthcare spending below 10% of GDP, with no loss of quality.
(b) eliminate most of the $10 TRILLION Medicare deficit created by Bush in the Medicare Prescription gift to Big Pharma
(c)with no mandates, fewer regulations
(d) and more choice for Americans.
It will take a while to lay all the groundwork for this, and correct all the distortions both left and right: two weeks tops.
http://www.PoliticallyHomeless.net
The New Silent Majority of anti-partisan independents
Michael: I took “young people” to be a relative term, in this case meaning “younger than 65.”
I’d decline to guess what percentage of GDP is appropriate to spend on health care. If we were a poor nation that spent most of its income on subsistence, then I could imagine a very low number. But as it is, with all the other crap we consume, from 4,000 sq. ft. McMansions to SUV’s to every kind of consumer gadget imaginable, who’s to say that 15 or 20% is excessive? Neither the absolute level of spending, nor the rate of change (except where they apply to unfunded government obligations) should be the primary concern in health care “reform.” Just make sure that the spending is not shielded from market forces.
So … what do you suggest as incentive in place of a mandate? Should we deny people without insurance admission to the emergency rooms? Deny them care when they get sick? Let them die when that can’t afford medication? Limit (ration) health care only to the insured? “Too bad, you should have bought insurance when you had the chance.”
Talk about pulling the plug!
Bart Ingles Sez: I took “young people” to be a relative term, in this case meaning “younger than 65.”
Thanks for the opportunity to clarify. I may have tried to squeeze too much here. I mean the effects of Community Rating on — say — a 25 year old vs a 55 year. That’s how both parties sabotaged prepaid HMOs a quarter-century ago, when they had a 25-30% price advantage over third party insurers.
Two ways to illustrate the principal here. In the direct examples I’ve found so far, the 55-year-old has premiums 5-6 times higher than the 25-year old.
With Community Rating everyone pays the same. The younger guy’s rates increase sharply, to offest much lower rates on the older guy. (I’m 67, in Medicare)
That’s what I meant about younger people seeing massive rate increases under Obamacare. As a Heritage reader, I’m sure you’ve seen all sorts of academic level arguments against Community Rating, none of which connect with the average American.
When I tell young people how their rates will skyrocket, they sit up and take notice.
EVERYONE takes notice when I describe Community Rating as Robin Hood in reverse: taking from younger (generally healthier) people and giving to older (generally wealthier) people.
“For this we need liberals?”
If you don’t mind, I’d like to critique your next statement. GREAT point, but I’ve done a lot of candidate coaching on how to best frame issues.
Bart Ingles sez: I’d decline to guess what percentage of GDP is appropriate to spend on health care.
In a free society, whatever we choose.(That was too easy!)
Bart Ingles:If we were a poor nation that spent most of its income on subsistence, then I could imagine a very low number.
BINGO! One of the least understood facts I believe. I’m researching an entire blog post on the issue. Consider expanding your opening statement instead of this next part ….
Bart Ingles: But as it is, with all the other crap we consume, from 4,000 sq. ft. McMansions to SUV’s to every kind of consumer gadget imaginable, who’s to say that 15 or 20% is excessive?
A lot of people are insulted by that. If you wish to persuade people — and you seem the type to persuade instead of scream — dont’t attack them for owning an SUV. Persuasion is a lost art in these days of bipartisan hate fests.
Enough babble (mine). I like attention getters. We spend more on healthcare for the same reason Bill Gates has more disposable income than a homeless guy. No insult, and you can expand your point about spending less on subsistence.
Bart Ingles : Neither the absolute level of spending, nor the rate of change (except where they apply to unfunded government obligations) should be the primary concern in health care “reform.” Just make sure that the spending is not shielded from market forces.
Quite true, Bart. But we still need to deal with these issues in the political arena. The public believes market forces have failed. So don’t use the term or you’ll raise a needless side issue, and may not even know it. Like what we call a “hidden objection” in sales.
We – economic libertarians — keep talking numbers, which is why we keep losing. Liberals talk about people. Who gives a damn if Canada has so many fewer MRIs and CAT scanners?
Think like a salesman: Sell the sizzle and not the steak. Let’s recall how von Mises titled his magnum treatise on market economics: Human Action.
It’s about people – how and why we act. Not machines. We know this. But do we practice it?
Here’s what I found on a Canadian Health web site.
The number of Canadian women receiving mammograms is 10% LESS than in the United States.
I’ve told that to a dozen women in the past week or so. I owned them – got their rapt and immediate attention Most of them are not engaged at all in politics. (Yet).
And none of them asked me about machines!
Canadians CAN’T pull the plug on grandma. They don’t have enough plugs to start with.
Sell the sizzle; not the steak.
http://www.PoliticallyHomeless.net
Gregory Isaacs Says:
>>>>So … what do you suggest as incentive in place of a mandate?
Tell me the issue where mandates now govern, and I can show you an incentive.
Carrot and stick. Which is more effecftive with you at your job — incentives or threats?
>>>Should we deny people without insurance admission to the emergency rooms?
That’s not as big a mnadate as you may think. The federal government reimburses hospitals for unpaid ER treatment.
>>>Deny them care when they get sick?
I’ll assume you mean deny them insurance when they get sick. I’d be a fool not to.
My Dad died yesterday. I rushed out to buy life insurance on him, to pay for his funeral. Those greedy insurance companies only care about their damn profits. Every single one of them turned me down, which PROVES they are corrupt.
If people can buy insurance AFTER they get sick, why should anyone buy it BEFORE they get sick?
This proposed mandate should not be replaced with an incentive. It should be dropped. If you offer people an incentive to rip off their fellow man, don’t be surprised when some of them do it.
>>>Let them die when that can’t afford medication?
There is no mandate on that
>>>Limit (ration) health care only to the insured? “Too bad, you should have bought insurance when you had the chance.”
Forget healthy care. Wal-Mart rations FOOD. They make me pay for it.
We need to deal with people who may be uninsured from changing jobs, or being temporarily unemployed. And we need to separate these people from the ones who would intentionally avoid insurance until after they get sick. Tell me how YOU would do that and I’ll show you an incentive that will work better.
>>>>Talk about pulling the plug!
Let’s review. You asked me a question. You provided answers. Then you judged ME based on YOUR answers.
How long have you been in office, Congressman?
Bart Ingles Says:
I don’t know about large company plans, but small business plans all seem to be age-banded. So any coverage available to an employee above the age of 55 or 60 will be, by this definition, a Cadillac plan. But for young employees, the $8K limit would have zero effect as an incentive.
————-
I believe age-rating still applies to all small-business plans — but not member-association plans. I recently retired as a small-biz consultant for 40 years, and founded a local small-biz group in the 70s for healthcare and general group purchasing.
We need to appreciate how our employer-based system discriminates against the vast majority of American workers who work in small business. It’s not just the rates, smaller businesses cannot manage more than two choices. That was the focus of my year 2000 general election campaign for Washington State Insurance Commissioner.
That’s why the insurance exchanges COULD be super (without all the dumb regs). I would expect the small employer to have well over 50 different plans — a lot more than government and big-corp employee.
On that insurance commissioner race — by hindsight, I would have won if I hadn’t run as a Libertarian. (When you’re done laughing …..)
Is any of this what we really want? I am 60 years old (baby boomer). I don’t want young people to be taxed excessively, just as I don’t want the elderly to be taxed excessively. However, whether or not you like the statement I’m about to give – the elderly are the ones who get sick the most, because, duh, they’re elderly. Most of them can’t work and have paid into medicare all of their lives just so they can be taken care of when they are no longer able to take care of themselves. Now, this may seem off the wall, but I think Baucas’s plan is to take away from the elderly specifically and give to everyone else. I would be saying this even if I wasn’t 60 years old. I have a mother that is 80 years old and I want to make sure she is taken care of. All of you young folks and everyone else who thinks they should take away from Medicare need to remember that one day you will also be elderly and then what? Are you going to still think the same about taking away from the elderly?
John,
Excellent piece. Love your stuff, very insightful. Now I have to razz you a bit. I beat ya. I am a practicing physician.
Now I cede the details, because at that point the specifics were unknown. Anyway, I think we’re doing something good here too and wanted you to check it out when you have a chance. Have a look at H.R. 3200 and Illegal Immigrants, very specific analysis of the issue 😉
[…] of $8,500 (individuals) and $23,000 (families). But since it’s not indexed to medical prices, eventually it will reach everyone. It’s also very regressive, applying a 40% rate to everyone, regardless of income. Minimum wage […]
[…] of $8,500 (individuals) and $23,000 (families). But since it’s not indexed to medical prices, eventually it will reach everyone. It’s also very regressive, applying a 40% rate to everyone, regardless of income. Minimum wage […]