Against The Excise Tax

By Big Tent Democrat, Section Other Politics
Posted on Mon Nov 30, 2009 at 10:02:33 AM EST
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Briefly putting away the pom poms, after restarting the six month campaign against the public option, Josh Marshall publishes a reader e-mail against the excise tax:

The big issue, it seems to me, is whether or not the Senate's revenue mechanism -- including health care benefits worth greater than $8000 per year as taxable compensation for individual and household filings -- or the House's, which is a surtax on incomes above $500K: much more progressive and much more consistent with the basic Keynesian economic (as opposed to moral) justification for social benefits, that they encourage more efficient distribution of income by creating a broader base of consumption. (Ie, more people with adequate disposable income and fewer people with excess wealth that is not spent).

[MORE . . .]

Being myself somewhat involved in public employee health insurance issues in my state, Nevada, and knowing that the right wing has been banging on about "cadillac benefits" for quite some time, I'm quite sure that if the Senate mechanism is included, we'll see a rather sustained campaign at state and national levels of demonization against the more generous plans negotiated on behalf of unionized workers in the public and private sector. In other words, it'll be an open door for the Chamber of Commerce to continue to try to campaign to drive down employer-based benefits across the board. And since most people who already have coverage through employers won't really be effected by the Obama plan's benefits, the additional cost to employees who have good insurance at work will make the whole bill a net negative -- and the anger will be, of course, directed at Obama.

I agree with the e-mailer's take on the excise tax. I am rather shocked to see Josh Marshall endorse that view. Hopefully he'll put away the pom poms for this issue at least. (Obama is a big fan of the excise tax.)

Speaking for me only

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Against The Excise Tax | 31 comments (31 topical)

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This (none / 0) (#1)
by Ga6thDem on Mon Nov 30, 2009 at 10:11:54 AM EST

is just one of the many bad things about the bill. I'm now considered (if this writer is correct) has having cadillac benefits which I consider idiotic because I have a $5000 on my policy. I guess the idiots in Washington don't realize that insurance companies base rates on the age of the insured.

These people are pretty much guaranteeing that the GOP will be back in complete control of the goverment by 2012.

The excise tax (none / 0) (#4)
by Steve M on Mon Nov 30, 2009 at 10:48:15 AM EST

only applies to policies sold in the group market and self-insured plans, not to policies sold in the individual market. Of course group rates are not, in fact, based on the age of the insured.


Wrong (none / 0) (#17)
by dissenter on Mon Nov 30, 2009 at 11:47:15 AM EST

I have a small group policy. It based on the age of employees/owners. Your comment is just flat out wrong.


dissenter (none / 0) (#21)
by kmblue on Mon Nov 30, 2009 at 01:14:22 PM EST

is correct.


How is he wrong? (none / 0) (#26)
by MileHi Hawkeye on Mon Nov 30, 2009 at 02:07:40 PM EST

You're both saying the same thing.

Group rates are most often (some are banded rates) based on a composite (or blended) rate of all individuals who make up the group, not the age of a particular individual in that group.


Small Group (none / 0) (#29)
by dissenter on Mon Nov 30, 2009 at 03:50:01 PM EST

Less than 5 people. The insurance companies charge you by the age of the person not the combined ages or median age of the group. If you have a 25 year old you pay X for that person. If you have a 60 year old you pay x for that person. If you have a 35 year old you pay the 35 year old rate. Add them all up and that is your insurance premium. It is in fact not a group rate. It is a shell game. And it isn't just my insurance. My friend has a consulting group of 12 to 15 people depending on the time of year. His premiums (different insurance company than mine)works the same way. Thus, he hires lots of interns that are cheaper in wages and insurance costs.

Welcome to Colorado:) The only businesses getting huge discounts are big, big companies that most people don't work at.

And we also have tort reform in this state. It works so well don't ya think:)


: Either the Company... (none / 0) (#31)
by MileHi Hawkeye on Mon Nov 30, 2009 at 04:11:58 PM EST

...is in violation of the law or you don't quite understand how policies are rated.
It sounds like you group is using age banded rates--again, not the age of a specific individual in the group.
Here is the law.
And yes, tort reform in Colorado has had an impact on our MedMal rates.

I hope you are not suggesting (none / 0) (#27)
by Steve M on Mon Nov 30, 2009 at 02:45:06 PM EST

that a small group policy is nothing more than a collection of individual policies, because it isn't.

Of course age is a factor in a small group policy but you don't see the same degree of linkage that you do with an individual policy. And the more important point of my comment - which is not flat out wrong, but in fact, completely right - is that the excise tax does not apply to the individual market.


: This post (none / 0) (#30)
by dissenter on Mon Nov 30, 2009 at 03:53:22 PM EST

contradicts your original post. Reread it.

My understanding of the value of the excise tax is (none / 0) (#2)
by steviez314 on Mon Nov 30, 2009 at 10:37:34 AM EST

that by penalizing the truly excesive plans that over-cover most health care items, it goes much further to reduce health care costs than any other mechanism.

Of course, a public option does too--probably by cutting premiums 10-20%. But it doesn't address the main problem of health care--that the consumer of care is not the payer for the care (after premiums).

An income surtax, while progessive, doesn't operate within the health care system, and so won't have any impact on supply and demand.

Perhaps this is an area where that can truly be a compromise--a smaller income tax surtax, alsong with an excise tax on cadillac plans.

I'm sensitive to the idea that these plans were negotiated as a substitute for wages. Maybe the excise tax should be only on cadillac plans given to wage earners above a certain income level.

Your last line is key (none / 0) (#3)
by Big Tent Democrat on Mon Nov 30, 2009 at 10:40:56 AM EST

If the Village Bloggers embraced that idea, they would have my respect.

They will not, so they don't.


Yes, for example (none / 0) (#7)
by Pacific John on Mon Nov 30, 2009 at 11:01:07 AM EST

I have a manufacturing firm. I offer solid benefits to all of my employees, and my older employees' premiums are $1/mo, about 1/4 of their entire income.

Wanting to tax the h*ll out of my hourly employees' does not make me think warm thoughts about Matt and Ezra. What it does make me do is grasp for ways to destroy this bill along with their careers.


They are not progressive (none / 0) (#8)
by Big Tent Democrat on Mon Nov 30, 2009 at 11:03:34 AM EST

in the way we think of the word.

I'm not much of a progressive either, but on tax policy, I am. They aren't.


: They have refined the word (none / 0) (#11)
by Pacific John on Mon Nov 30, 2009 at 11:20:20 AM EST

so it no longer applies to the little people. As elitist as they are, I'm surprised they let a kid like Ezra with his degree from UCLA in the room.

Anyone (none / 0) (#5)
by Steve M on Mon Nov 30, 2009 at 10:49:30 AM EST

who had the negotiating power to insist on a "gold-plated" plan in the first place will have the negotiating power to make sure that plan isn't simply taken away due to the excise tax with nothing in its place.


Strong disagree (none / 0) (#6)
by Big Tent Democrat on Mon Nov 30, 2009 at 10:57:56 AM EST

To argue that employee bargaining power is not weaker now, and WEAKENED by facing the excise tax, is not paying attention, with due respect.


Sure (none / 0) (#9)
by Steve M on Mon Nov 30, 2009 at 11:13:57 AM EST

of course it's weaker now. But it overstates the point to postulate an employee (or a unionized group of employees) who had so much bargaining power in the first instance that they were able to secure a gold-plated plan, but now they have so little bargaining power that they just have to accept whatever scraps the employer chooses to dole out.

My view is that if employers could blithely scale back compensation packages without facing any adverse consequences in terms of loss of employees or inability to attract new ones, for the most part they would do so whether or not they have the excise tax as an excuse.


I think it's hard to overstate (5.00 / 1) (#12)
by andgarden on Mon Nov 30, 2009 at 11:22:11 AM EST

the impact of wage reduction by legislative fiat.


Sure (none / 0) (#13)
by Steve M on Mon Nov 30, 2009 at 11:37:28 AM EST

if that's what was occurring here. But the legislature is not mandating wage reductions, they are simply imposing a new tax on employers.

We can disagree about the extent to which that tax will be passed on to employees in the form of wage cuts, but your formulation just trivializes the issue.


At best, this is a regressive tax (5.00 / 1) (#15)
by andgarden on Mon Nov 30, 2009 at 11:39:40 AM EST

on people who take a substantial amount of income in the form of health benefits. So the question is, who makes up the difference? I can't think of many companies that would quickly respond with a wage increase.


The default (none / 0) (#16)
by Steve M on Mon Nov 30, 2009 at 11:45:01 AM EST

is that the employer pays the tax, since they are the direct target of the tax.

If you think the employer can unilaterally jam a sizable cut in compensation down the employees' throats (sample argument: employees have no bargaining power in a recession!) then you have to explain why they aren't simply going to do so anyway, tax or no tax.

The odd thing is that it is usually Republicans who argue that it's useless to tax corporations because they will simply pass the costs through to customers and/or employees. I've always believed it's not so simple in the real world and I still do.


It's possible that I misunderstood (none / 0) (#18)
by andgarden on Mon Nov 30, 2009 at 11:49:00 AM EST

who this scheme worked. If the tax is imposed on the corporation itself, that does lessen my concern. But I would still expect this to be used as a pretext to reopen contract negotiations. If ever there were a "changed circumstances" argument, I would expect it to be here.


Sure (none / 0) (#19)
by Steve M on Mon Nov 30, 2009 at 12:41:54 PM EST

but saying that negotiations will be reopened is a far cry from proclaiming that employers will simply ditch the gold-plated benefits and offer nothing in exchange, full stop.


You're both wrong (none / 0) (#20)
by Big Tent Democrat on Mon Nov 30, 2009 at 12:58:19 PM EST

The tax is imposed on the insurance company who then will pass along the increase to the employer who will then cut health insurance benefits.

End of negotiation.


At renegotiation time, presumably (none / 0) (#22)
by andgarden on Mon Nov 30, 2009 at 01:25:18 PM EST

Actually, the leverage difference is not so clear-cut in that situation.


Doubtful (none / 0) (#23)
by Big Tent Democrat on Mon Nov 30, 2009 at 01:28:06 PM EST

Most employers do their health insurance purchasing yearly.

Hint -- not every employee effected has a CBA.


I'm out of water here, but isn't a union k (none / 0) (#24)
by andgarden on Mon Nov 30, 2009 at 01:47:09 PM EST

usually mutli-year?


Yes (none / 0) (#25)
by Big Tent Democrat on Mon Nov 30, 2009 at 01:53:12 PM EST

But, forgetting a moment about non-union employees, that does not mean that health care coverage is not changed on a year to year basis. For example, consider a CBA that puts a $ value on health benefits.


: Totally out of my element here (none / 0) (#28)
by andgarden on Mon Nov 30, 2009 at 03:33:39 PM EST

And I don't have the time to do the homework just now. . .

I think you underestimate (none / 0) (#10)
by Big Tent Democrat on Mon Nov 30, 2009 at 11:16:26 AM EST

the power of inertia in bargaining.

I think you UNDERestimate the power of tax consequences in bargaining.

In addition, I think the data undermines your views on this subject.

: Maybe (none / 0) (#14)
by Steve M on Mon Nov 30, 2009 at 11:39:37 AM EST

but even the industry-friendly PWC analysis wasn't willing to go as far as you in assuming that the employees will just end up absorbing the full brunt of the tax.