Serious Obamacare Rationing Provision Again Under Fire

By Jennifer Popik, JD, Robert Powell Center for Medical Ethics

ushealthA renewed pushback is underway against one of the most serious of the multiple rationing provisions of the five-year old Obama Health Care law — the “excess benefits tax.” The original law deliberately delayed the provision’s implementation until 2018 because of its controversial nature.

According an April 6, 2015 story by Brian Faler in Politico, “Many expect it to be the next protracted battle over Obamacare — one that threatens to become a headache for Democrats, many of whom never liked the tax despite supporting the law more generally.”

Obamacare imposes a whopping 40% excise tax on employer-paid health insurance premiums above a governmentally imposed limit that does not allow for medical inflation. The “excess benefits” tax will have its intended result of effectively imposing a price control on health insurance premiums.

Consequently, insurance companies will be forced to impose increasingly severe restraints on policy-holders’ access to medical diagnosis and treatment–limits that will not prevent setting broken legs and giving flu shots, but will make it harder and harder to get the often expensive medicines, surgery, and therapy essential to combat such life-threatening illnesses as cancer, heart disease, and organ failure.

Unions, including the AFL-CIO and the National Education Association, long known for tough negotiating with employers that has been successful in securing employee-friendly health insurance benefits for their members, are calling for a repeal of the tax. They assert their members’ employers are already faced with having to reduce benefits if the tax is not repealed.

As Faler explains,

What’s more, even if a company ducks the tax in 2018 — and many have been trying to wring savings out of their plans in anticipation of the new rules — they may only get a temporary reprieve. That’s because Congress pegged the tax threshold to a relatively slow measure of inflation. It’s linked to the consumer price index plus 1 percent, even though medical costs typically grow much faster.[1]

Frequently cited employer surveys by Mercer, a health care consulting firm, show that about one-third of employers will be hit by the tax in 2018 with current plan benefits and nearly 60% would be subject to the hefty tax by 2022.

A recent analysis published in the prestigious journal Health Affairs concluded that most companies won’t wind up offering insurance in an amount that would become subject to the tax, but instead will simply cut benefits.

With the coming in 2018 of the …[excess benefits tax], both collectively bargained and employer-based plans that exceed these thresholds will probably reduce the generosity of their benefits to reduce premiums. Consequently, the comprehensive plans offered today by some unions and employers will likely become scarcer. [2]

This hefty tax might even be meant to have the long-term effect of driving all Americans into the frequently skimpy plans of the government health care exchanges, pushing employers out of providing health care benefits altogether. According to Faler,

Former Obamacare adviser Jonathan Gruber, in one of the now-infamous videos that emerged late last year, said rising medical costs ensure the …[Excess Benefit] tax will eventually all but eliminate the break companies get for providing health insurance.

Obamacare is slowly beginning the process of destroying much that is valuable in the health care system which has evolved to serve Americans. It is wrong to suppose– as does Obamacare– that in order to provide health care to those with low incomes the government must limit health care for others, or that the government must “protect” ordinary Americans from using too many of their resources to save the lives of their family members by imposing arbitrary limits on what they are allowed to spend for health insurance and health care.

But that is just what the excess benefits tax intends to do…..to squeeze out plans that allow people access to sometimes expensive, but lifesaving, medical care.

Contrary to conventional wisdom, in the aggregate and over the long term Americans can afford to devote an ever growing proportion of our income to saving our lives and promoting our health, because increasing productivity in producing other goods and services frees up resources that enable us to do so. See www.nrlc.org/uploads/medethics/AmericaCanAfford.pdf .

As more money is spent on health insurance by employers and individuals, cost-shifting keeps pace in making available health care for those who cannot themselves afford to pay its full cost. As NRLC has proposed, incorporating the cost of subsidies for growth in health care spending on behalf of those who genuinely cannot afford it into what employers and individuals pay for their own health insurance would result in a self-executing restraint on unsustainable growth in health care spending, while avoiding Obamacare-type arbitrary government limits that suppress what we are collectively able to, and desire to, spend to preserve the lives and health of our families.

Details can be found at www.nrlc.org/uploads/medethics/ObamacareAlternativeNRLC252015.pdf

[1] For documentation on the way medical inflation exceeds the average rate given by the consumer price index (CPI), see www.nrlc.org/uploads/medethics/MedicalInflationOutpacesCPI.pdf .

[2] Gabel, Jon R., et al. “Collectively Bargained Health Plans: More Comprehensive, Less Cost Sharing Than Employer Plans.” Health Affairs 34.3 (2015): 461-466.