On a conference call put together by the Economic Policy Institute, Rep. Joe Courtney (D-CT) said that he has the signatures of 190 Democrats on a letter opposed to the excise tax on high-end “Cadillac” insurance plans, and that stopping this tax was the “#1 priority” of the House of Representatives as they move to reconcile the House and Senate health care bills.

Courtney actually collected the signatures against the excise tax back in September and October, but he said that in the only caucus of House Democrats before Christmas, the majority of comments from members objected to the tax. He said that the Senate is “leaning hard for their position,” and they have some support from the White House. But judging from Nancy Pelosi’s recent comments, “this is where there’s the most resistance to the Senate plan because she knows this is where the caucus is.”

Courtney believes that the feeling has intensified among House Democrats because of input from constituents at town hall meetings and polling, both public and private. He cited several public polls showing 2-1 opposition to the excise tax, and said that members have conducted their own polling showing the tax to be “politically toxic.” He added that “on policy and political grounds, the House approach is right approach.”

TPMDC reported today that Speaker Pelosi does privately want the excise tax stripped from the final health care bill. This added pressure from Rep. Courtney only adds to the dilemma, as the White House has endorsed the Senate financing structure.

Both Rep. Courtney, EPI policy analysts Larry Mishel and Josh Bivens and former Clinton Labor Secretary Robert Reich offered compelling reasons why the House version of financing, featuring a surtax on high-income earners, would be preferable to the excise tax. Courtney noted that, according to a Joint Committee on Taxation study, 27% of family plans would be hit by the tax in its fifth year of operation in 2019, and 22% of individual plans. He termed the indexing of CPI +1% “inadequate,” and believed that, as health insurance premiums go up, the excise tax would turn into “the AMT on steroids.” That’s a reference to the alternative minimum tax, which was originally designed to affect high-income earners who avoided paying taxes through multiple deductions, but which now impacts so many people in the upper-middle class that a patch is offered every year. My guess is that would be how the excise tax would work in practice, making it ineffective as a revenue raiser.

Furthermore, it’s completely unclear that this tax, designed to target insurance plans which are too lavish, would actually meet that goal. Because of the age rating in the Senate bill, where insurance companies would be able to charge three times as much for an older customer than a younger one, the tax would disproportionately hit older Americans. In addition, regional disparities play a major role in driving premium prices, which middle class families cannot control. (There is a 3-year grace period for those regional disparities, but it’s unclear how those costs will be equalized in three years’ time.) “For people to be taxed for these factors has no bearing on good health care policy,” said Rep. Courtney. “I don’t know what they were thinking at the Senate Finance Committee, but it’s a joke.”

Josh Bivens of EPI added that recent studies showed only 4% of the cost of insurance plans can be attributed to the generosity of those plans. “It’s more proper to title it a small business health insurance tax” than a tax on “Cadillac” plans, he said.

There are carve-outs for certain industries, like longshoremen and public safety workers, in the Senate bill, but this shows the impossibility of trying to target plans with offer lavish benefits. Larry Mishel of EPI noted that 75% of all teacher plans would be affected because that profession employs a disproportionate number of older women.

Bivens added than any cost containment from the excise tax would be derived from consumers cutting back on their own health care coverage. And he said that is “not the way to go after the trend in high health care spending… Consumers are not the people to decide what health coverage to squeeze out.” Dr. Reich added that if working families needing health care are forced to cut back, that defeats the entire purpose of the bill. He also said there are far better ways to control costs on health care spending, such as through bargaining to lower down prescription drug costs. He called the excise tax “a blunt instrument” and added, “to put the onus on older workers and small businesses is not only unfair but inefficient,” said Reich.

Reich and Mishel both pushed back on the idea that employers would make up for decreasing their health care costs by increasing wages for employees. “There’s no reason to assume that wage increases will come forth, especially in the current environment, and there’s no reason to suppose that wage increases would equal the amount of coverage foregone,” because that coverage came on pre-tax dollars. Mishel added that health care costs are not a major part of overall compensation packages (about 7%), and the rise in health care spending by employers over the last twenty years would have amounted to just a 0.1% increase in wages annually. “The problem is that workers are not benefiting from productivity growth because employers have the upper hand,” Mishel said. “If health care costs go down, employers won’t raise wages in response.”

Courtney added that the genesis of the excise tax, essentially, was John McCain’s Presidential campaign, which called for the complete elimination of the employer deduction for health care benefits. Despite it being initially a Republican idea, “the GOP won’t give Democrats a free pass for this.” He noted that the Chamber of Commerce is targeting the “tax on benefits” in their main ad against the health care bill.

“When McCain proposed this (in the campaign), the Obama campaign went for his throat. The paid media they put into this issue was huge. The issue had tremendous potency. I don’t see any indication that the change of heart in the White House has changed the American people’s hostility to the idea.”

UPDATE: In case you’re interested, here’s EPI’s report on health insurance, the Cadillac tax and wages.

David Dayen

David Dayen