By Jennifer Popik, JD, Robert Powell Center for Medical Ethics
Most state and city government health care plans, as well as many other plans, are soon to be undermined by one of the most serious of the multiple rationing provisions in the five-year old Obama Health Care law — the “excess benefits tax.”
A May 12, 2015, article entitled “The ‘Cadillac’ tax will soon hit many cities and states” published in Real Clear Markets and written by Robert Pozen of the non-partisan Brookings Institution observes
[U]nder current law, the healthcare plans of many local governments will become subject in 2018 to … an excise tax on healthcare costs above specified annual amounts… Most states and cities offer generous healthcare plans to their civil servants during their working years and through their retirement until they go on Medicare. In general, local governments offer their employees a broad range of high-quality medical services with little or no co-payments and minimal deductibles. And local governments pay most, if not all, of the annual premiums for such generous healthcare plans.
Obamacare imposes an enormous 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.
According to Pozen,
In a 2013 letter, the deputy mayor for operations in New York City estimated that the Cadillac tax would cost the City $22 million in 2018, rising to $549 million in 2022. Similarly, the Association of Washington Cities, which offers a pooled plan to municipalities in Washington State, estimated that the “Cadillac” tax could increase local taxes by $76 million over the decade starting in 2018.
The question becomes, what can these employers do?
According to Pozen
In most cases, local governments will try to avoid the [excise benefits] tax by constraining the growth of their healthcare costs. For example, local governments are likely to ask public employees to contribute more of their insurance premiums, make larger co-payments for doctor visits (except for preventative care) and accept a narrower range of covered services.
The “narrower range of covered services” means that workers will have access to fewer and less effective medical treatments – including life-saving medical treatments. In short, their health care will be rationed by the Obama Health Care Law.
Not only are state and local municipalities deeply concerned over the future of these plans, many Democrats and Republicans in Congress are also troubled as well. Members of Congress, even members who support the health care law generally, are thinking of revisiting this portion of the law.
This excise benefits tax will soon hit not only city and state workers, but also many other employees with plans that are less likely than others to restrict the ability to obtain medical treatment. And due to a built-in mechanism in the Obama Health Care law, most health insurance plans, even ones now considered meager, will eventually be subject to the tax down the road.
David Nather, in his 2013 September 30 Politico article “How Obamacare affects businesses – large and small” explained the coming phenomenon:
For one thing, the thresholds [at which the excess benefits tax will be imposed] were set in 2010, and even though the law has a method for raising them if there’s a lot of growth in health care spending, employers are still concerned that they’ll get busted for offering fairly standard plans… [Thresholds will] be linked to the increase in the consumer price index, but medical inflation pretty much always rises faster than that. Think of the Cadillac tax as the slow-moving car in the right lane, chugging along at 45 miles per hour. It may be pretty far in the distance, but if you’re an employer and you’re moving along at a reasonable clip in the same lane — say, 60 miles per hour — and you don’t slow down, you’re going to run smack into it.
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–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 we 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 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 nrlc.org/uploads/medethics/ObamacareAlternativeNRLC252015.pdf
For documentation on the way medical inflation exceeds the average rate given by the consumer price index (CPI), see nrlc.org/uploads/medethics/MedicalInflationOutpacesCPI.pdf .