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Tuesday, October 15, 2019  Spokane, Washington  Est. May 19, 1883
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Ditch Cadillacs for Malibus

Labor unions have been excused from the tax on “Cadillac” health care plans until 2018, which has drawn strong rebukes.

“This latest back-room maneuver is another example of how administration officials and their enablers in Congress will cut deals with their special-interest allies to impose a government takeover of health care,” said U.S. Rep. John Kline, R-Minn., the senior Republican on the House Education and Labor Committee.

First, the government took over health care long ago. Nearly 160 million Americans obtain coverage from their employers, who receive tax subsidies for purchasing insurance. This tax exclusion cost the U.S. Treasury about $200 billion in 2007. This does not include the tax breaks for self-insured businesses or the self-employed, the exemption from state income taxes and itemized deductions for expenses. The elderly are covered by Medicare. The poor have Medicaid. Children are covered under SCHIP. Many states have their own health plans.

But to date, this “imposition” has not been labeled a government takeover. It has been called the finest health care in the world, which is sheer hyperbole (but that’s another column).

Second, this is not the only deal that has been cut, and some of the players are not allies. Before any bill was close to adoption, the Obama administration cut deals with pharmaceutical companies, insurance companies and hospitals.

For instance, in exchange for $80 billion in “give backs” over 10 years, drug companies received assurances that government would block the reimportation of lower cost drugs from other countries and would bar Medicare from using its purchasing power to bargain for lower drug prices. If there was a big protest, I missed it.

The tax on high-cost health plans is another way to raise money to pay for the expansion of coverage. In actuality, it’s not a tax as much as it is a reduction in a tax break. And as MIT economist Jonathan Gruber points out, enrollees in Cadillac plans still come out ahead.

To understand this, it helps to think of wages and benefits as compensation. The government taxes salaries but not benefits. So if you are in a high tax bracket, the tax break for benefits is more valuable. It can be 35 cents per dollar for a high earner and 15 cents per dollar for lower-income people. A typical health care plan might cost an employer $13,000 per enrollee, which nets the company a $4,500 tax break per person. A Cadillac plan might cost $26,000 per enrollee, which delivers a $9,000 tax break per person.

The government is sending twice as much money to the second company because its coverage is more expensive. This ought to bother fiscal conservatives. Even after that extra amount is taxed, Cadillac enrollees will be getting a bigger break. But the hope is that employers will phase out these plans.

Government savings aside, it doesn’t make sense to encourage Cadillac plans. A RAND study shows that providing health coverage to the uninsured results in a big boost to their overall health. But extending “really good” coverage to those with “good” coverage does not produce better health outcomes. In other words, Chevy Malibu plans are more cost-effective than Cadillacs.

Now, none of this justifies favored treatment for unions, but this is politics, and deals are cut in all legislation. This is especially true under the new calculus in the U.S. Senate, where 60 votes are required to head off a bill-killing filibuster. So you get deals like this for the unions for some votes and the sweetheart deal U.S. Sen. Ben Nelson scored for Nebraska, wherein that state is exempt from its share of Medicaid payments – a deal he has since requested be withdrawn due to the firestorm it generated.

Taken alone, these would never pass.

But if Republicans want to end the deal-making, they need only drop the threat of the filibuster. If 51 votes is all that’s needed for passage, then holdout senators wouldn’t need to be placated.

That works for me. But I suspect Republicans value the protests more than passing health care reform.

Smart Bombs is written by Associate Editor Gary Crooks and appears Wednesdays and Sundays on the Opinion page. Crooks can be reached at or at (509) 459-5026.
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