Who Will Pay for Health Care?

There's only one big remaining issue on health care reform: how to
pay for it. The House wants a 5.4 percent surtax on couples earning at
least $1 million in annual income. The Senate wants a 40 percent excise
tax on employer-provided "Cadillac plans." The Senate will win on this
unless the public discovers that a large portion of the so-called
Cadillacs are really middle-class Chevys, expensive not because they
deliver more benefits but because they have higher costs.

The dirty little secret under the hood is that less than 4 percent
of the variation in the cost of current health-care plans has to do
with how many benefits they provide. Most plans that cost more do so
because (1) a particular set of employees is older and tends to get
sicker than the average set of employees (that's true for a lot of old
rust-belt firms), (2) the plan is offered by a small business that
lacks bargaining clout with insurers (small businesses pay, on average,
16 percent more for the health insurance they provide, per capita), (3)
the work that employees do subjects them to greater risk of medical
problems (health-care workers, for example), or (4) most employees are
women (who tend to have higher health-care costs than men because women
are the ones who bear children). Plans could also cost more but deliver
average benefits because (5) insurers in the area don't face much
competition (one main reason for the public option).

So by taxing so-called Cadillac plans, the Senate bill would
actually end up taxing the Chevy plans of a large portion of the middle
class. And as time goes by, a still larger portion, since the Senate
plan is geared to the overall rate of inflation rather than to the
(much higher) rate of increases in health-care costs.

Defenders of the Senate plan say not to worry. Employers who bear
the tax and therefore have an incentive to cut back on health care for
their employees will make it up to employees in higher wages. But
anyone taking even a passing glance at today's labor market knows this
is wishful thinking. Employers have no incentive to raise wages when
almost everyone is worried about keeping their jobs. (Besides, a
dollar's worth of tax-free health benefit is worth more than a taxable
dollar of wages.)

In any event, I thought a major purpose of health-care reform was to
get more care to more people, not to cut it back. Even employees who
get extra dollars of wages to make up for the cutbacks won't
necessarily plow those wages back into health care.

Some say the Senate's excise tax is the only way to control
long-term health care costs. Baloney. If a portion of the middle class
loses their health care, they won't get the preventive care that's so
crucial to containing long-term costs. If Congress wanted to do more
cost containment it would allow Medicare and Medicaid to use their huge
bargaining power to get lower costs from pharmaceutical makers and
medical suppliers. And it would have a public option to compete with
private insurers.

Of course, we're playing with probabilities here. No one knows
exactly what will happen when the Senate excise tax hits -- how many
employers will cut back coverage without raising wages to compensate,
how many middle class people will be hit hard by this, how many who do
get higher wages will use them to buy health care, including preventive
care.

But why even take these chances when the House bill simply and
cleanly goes after the top 1 percent? It's not as if couples earning
over a million can't afford to pay the tax. When I last looked, the top
1 percent was taking home a record 23 percent of total income. If
anything, the Great Recession is widening the gap. It's bonus time on
Wall Street again. But the middle class is taking a beating.

This is the last big fight on health care reform. It's being fought right now. Make your voice heard.