• Why the Cadillac tax matters

    I’ve enjoyed (more than I should) the excitement around Austin’s posts on Senator Cruz’s health care subsidies. This is partly because we originally made this point more than two years ago. But since you’re all paying attention now, I think it’s worth a brief explanation on why the Cadillac tax matters.

    The first thing the Cadillac tax does is apply downward pressure on the cost of health insurance. In other words, it tries to get companies to avoid plans that cost more than $40,000 a year (what do you get with that?) and instead shunt more money into wages instead of benefits. But the second thing it does is limit the “subsidy” that goes to the well-off.

    In other words, think of that 40% tax on amounts above the Cadillac tax limits as a means of recouping the ~40% subsidy that people are getting for their insurance. In other words, the Cruz family would get a subsidy only on the first $27,500 of their insurance. The subsidy they would then get is still a LOT ($9900 by my calculation), and would cover a number of people on Medicaid, but at least there would be a limit. Unless you think people who do get $40,000 a year just in health insurance deserve more than $10,000 from the government in subsidies to help pay it.


    • I support a renewed thinking of ESI and the Cadillac tax, however I’ve been looking for an answer to this question without finding anything – Is there proof that individuals in these high-end plans spend more than others?

      I often see the assumption that generous insurance plans encourage people to use too much medical care, but I’ve just not seen the data.

    • I thought the Cadillac plans covered dental, orthodontia, health club memberships, etc.

      So, it’s not unlikely that Cruz is getting a tax break on his country club membership, courtesy of the ESI laws.

    • a) Even a family plan from Goldman at 40K – with as many bells and whistles as I can imagine–seems pricey. I would be interested in the the higher premium and what recipient gets beyond what we mere mortals receive at 20 or even 30K. I am not versed in the actuarial sciences. Need enlightenment.

      b) re: Caddy Tax. I have cited paper below before, but I am still uncomfortable with arbitrary (I think) caps on the level tax kicks in. Why?
      Some occupations have gotten waivers, not evidence-based but secondary to political influence; others will pay because of the misfortune of where they live (or what they do).

      The naming of the tax connotes the wrong image and by default, we equate it as a “luxury tax.” I am not so sure.


      • Probably concierge doctors?

      • Here we go again. Douthat today:

        “…Obamacare’s so-called “Cadillac tax” on expensive insurance plans — basically asks people who have been getting a very good deal from current health care policy (the well-off and upper middle class, and some union members with generous benefit packages) to live with a somewhat smaller subsidy and somewhat less generous employer coverage going forward.”

        Evidence please! Expensive does not necessarily equal privileged.

    • I know I come at this from a very different place than you and Austin – but I find it hard to say that the wealthy are somehow denying someone a medicare payment when they take advantage of the tax code as currently written.

      If you look at his 2010 tax return the Cruz’s paid something in excess of $60k in Self-Employment tax – $50k of which went to Medicar – enough to pay for 16 or so Medicaid enrollees annually. [he also paid over $600k in income tax in addition]

      I don’t think you or Austin are intentionally trying to demonize Cruz – but in today’s climate a lot of folks will try and take your post and twist it that way.

      Cruz and others who are fortunate enough to have done well for themselves PAY A LOT in taxes – I am fine with arguing that they SHOULD pay more though my preference is to keep it about were it is…

      The America I want celebrates achievement and thanks the Cruz’s who make a lot of money and pay the vast majority of taxes. I want everyone born in this country to rise to their potential – and God bless them if they end up making more than Ted Cruz and his wife.

      But then maybe I am being too sensitive.

      • If anyone is saying there are fewer getting Medicaid *because* of the ESI tax subsidy, it’s not me.

      • @LL
        Okay, but I’d expect a Libertarian to appreciate that ESI tax exemption is distortionary. In all likelihood, the Cruz’s and/or many like them, would rather have more money and fewer bells whistles in their health plan, but thanks to the tax exemption, they would get to keep only 65% of the extra income.

        And Cruz became the poster child for this issue because his spokeswoman said his insurance comes at no cost to the taxpayer, when his health insurance is getting a substantial subsidy via the tax code.

    • They should start the tax much lower or, better yet, get rid of the deduction all together or go with $2,000 tax credit in place of the deduction.

    • The subsidies to the rich that are being talked about are a direct result of wage and price controls. Control over wages and prices is something the left is quite well known for. That is what socialism and communism are all about.

      Presently one of the suggestions from the vastly diverse other side (in this case closest to a classical liberal) is to provide a tax credit and to entirely get rid of this type of tax subsidy. I would think that those that do not wish to be characterized on the extreme would think favorably of that proposal even if they didn’t embrace it.

      Why the Exchanges are a Mess and a Very Simple Solution