Open discussion of caddy tax v tax exclusion, October 2009 version

I was looking back through the columns (29 of them) that I wrote for the Raleigh (N.C.) News and Observer on health reform in 2009 & 2010 to see how I had discussed the cadillac tax versus a more straightforward capping of the tax exclusion of employer sponsored insurance. The presence of this tax (caddy tax) in the ACA has been given as evidence of a non transparent debate about the ACA. This is simply untrue.

On October 23, 2009, I wrote a column that focuses on the presence of what came to be called the Cadillac tax in the Senate bill and said this about the tax on high cost policies:

The tax on high-cost insurance policies is a de facto capping of the amount of tax-free income that may be received via employer-paid health insurance. I would prefer a more straightforward capping of the tax exclusion of employer-paid premiums because it would initiate a cultural conversation about health-care costs that more directly focused on the end user of care: patients. The high-cost tax has found favor because it would be politically easier to sell a tax on insurance companies than it would be to end a popular tax loophole that benefits those with good workplace health insurance. But they both work in more or less the same way.

This is not some soul-heavy confession about the Cadillac tax being a secret, opaque means of capping the now-unlimited tax exclusion of employer sponsored insurance, and being placed in a bill in the middle of the night so it could not be debate. it was written in a newspaper two months before the Senate passed their bill.

update: fixed some typos, and revised for clarity

Caddy Tax v Cap of Tax Exclusion in My Mostly Unread Book

I was leafing through my mostly unread book “Balancing the Budget is a Progressive Priority” thinking about why it was mostly unread (I think it was quite good, and I was insisting that both sides needed a health reform deal in Sept. 2011,even before the first SCOTUS case), and also looking at what I had written about my proposal of replacing the cadillac tax with a more straightforward capping of the tax exclusion of ESI, in light of the Grubergate stuff.

On the first question, the book holds that a deal (and another and so on; we will never be done) on health reform is needed to get to a long range sustainable budget. Health care costs are key to this goal, but instead of framing it this broadly I should have just written a book about the fact that both sides need a deal on health reform (was true in September 2011 and still true today). That was a mistake.

On the caddy tax v tax exclusion, this excerpt (p. 38-39) is illustrative. The cadillac tax is at once a tremendous policy victory for the generally conservative cause of worrying about costs, while also being a purposefully opaque means of achieving said goal.

The tax on high cost health insurance noted above is one of the most consequential
changes in the ACA because it represents a de facto capping of the subsidy
provided in the tax code to employer provided health insurance. This represents
a profound change of the health insurance landscape of the past 60 years, and
the President and the Democratic Congress have gotten too little credit in taking
this step.

As described earlier, this tax expenditure is one of the largest in our tax code and
amounts to a subsidy of around $250 billion last year that fl owed to persons with
employer provided health insurance, with high wage workers tending to receive the
largest subsidy since those with higher wages tend to have more generous bene fi ts.
The imposition of the excise tax of 40% on the amount above target cap levels
would create an incentive for insurance companies and employers to arrange for less
generous benefis for their employees.
Altering the tax treatment of employer paid insurance is an obvious “next step”
among policy wonks that would be taken to address health care costs. Indeed, this is
another example of an idea that is typically associated with Republican health plans
actually making it into the ACA. For example, then-Senator McCain’s health plan
in the 2008 Presidential campaign had at its center removing the tax preference of
employer provided health insurance. Candidate Obama criticized this approach during
the campaign, but the ACA contains a tax on high cost health insurance that will
achieve at least a capping of this subsidy.
The tax on high cost insurance works in a roundabout way to achieve this goal.
The rhetoric used in arguing for the tax focused on taxing insurance companies.
However, such a tax will certainly be passed on to employers and therefore employees,
since benefit costs are simply a portion of total compensation. This tax is one
that is designed to be avoided, meaning the successful functioning of the tax will be
shown through the reduction in generosity of benefit packages such that new total
premium amounts will be below the level at which the tax applies. For employees,
it is designed to trigger a conversation between employer and employee in which
health insurance bene fi ts are explicitly discussed as a portion of total employment
costs. Employees who now receive benefits and who may not even know their value
will be incentivized to know in the future. This will shift some compensation from
tax free (employer paid premiums) to taxable wages, increasing tax receipts.
Reforming the tax treatment of employer paid insurance will put downward pressure
on cost in fl ation in the private insurance market. It is important to address costs
in both private insurance and Medicare since payment differentials that are too large
will likely proved to be very dislocating to the ability of Medicare beneficiaries to
access health care services. We must address cost in fl ation in the private insurance
market as well as in Medicare, and the tax on high cost health insurance is a start to
doing so.

I would prefer a direct capping of the tax exclusion to the cadillac tax (I have written this many times, in many places). However, I would think that detractors would have a bit more humility about how hard it is to do hard things, especially as they are rising in their power. Another way to put it is this: since Republicans control the House and the Senate starting in January, 2015, they are free to go to the Commerce Committee in the House, and the Finance Committee in the Senate and replace the Cadillac tax with a capping of the exclusion. Show us how easy it is to do this very hard thing. If they try, I will help to make the case for it. Of course that would demonstrate they are interested in health reform, and not simply being unified by what they are against. I have my doubts.

Personal Thoughts on the UNC Scandal

Being an undergraduate at Carolina changed my life in ways that are difficult for me to describe. I entered as an un-initiated kid, and left with a passion for health policy and on my way to being a professor (OK, I wouldn’t have predicted Duke then). As I wrote in an op-ed in the News and Observer in September, 2012

I have been deeply embarrassed by what I have read about my alma mater over the past two years. Whatever has happened that is wrong needs to be laid bare, and strong plans made to ensure the same mistakes are not made again.

I am beyond deeply embarrassed by the Wainstein report. Basically, from the early 1990s until 2011, the pride taken by people like me in “the Carolina way” of athletics was a lie. And of course pride is one of the seven deadly sins.

One thing that is abundantly clear from the report is that this was an athletic scandal. The number of sham courses–around 3,100, half of them taken by varsity athletes–is a numerator over a denominator of around 3.2 Million courses taken by undergraduates during that period. The promise of Carolina is still true for those who take advantage of it, or who are allowed to do so. I don’t blame the kids for what took place. The adults are responsible. They are responsible for the nearly unforgivable sin of a teacher telling a student in word and deed that they have no chance to succeed from the start. Or putting them into a situation in which they would inevitably fail.

I love sports, and am even a middle school football coach. While the notion of a true student athlete (attends college, just happens to play a sport) is incompatible with big time college revenue sports and has not been fully true for some time (football and basketball playsers are students with full time jobs to boot), i still want to believe that it can be done well. And that the benefits that come from sports that are enjoyed by so many, are not produced by the inevitable cost of the athletes themselves not getting an education.

This episode is certainly a data point that casts doubt on my hope.

Changing views on Halbig/King across time: the case of PPS 165

Much has been written about the Halbig/King litigation that centers on the question of whether federal subsidies can flow to persons who purchased coverage in states with federally facilitated exchanges (I’m not going to try for comprehensive link round up). I have nothing to add on the merits of the case. I write to report drastic changes in what Duke undergraduates (mix of frosh, soph and pre-med kids) taking my class at Duke University (PPS 165, Introduction to the U.S. Health Care System) have thought about it over the past 3 Fall terms (2012, 2013, 2014).

I assigned the identical memo prompt all 3 semesters. The goal was to get them to look at the text of the law and the IRS regs and decide what they thought; it is an assignment in making a decision and writing persuasively. I provided little to no discussion of the issues prior to their writing. The breakdown of student views across the 3 semesters were as follows (No means a conclusion that tax credits cannot legally flow to persons buying in a federally facilitated exchange; yes means they are allowable):

  • Fall 2012: 5 no, 37 yes
  • Fall 2013: 14 no, 21 yes
  • Fall 2014: 18 no, 12 yes (these were due today; there were several students who have yet to turn in their memo)

This is quite a shift in 2 years. A few words on context. In Fall 2012, this topic was esoteric and very few were discussing it broadly in the nation. I had Michael Cannon, a principal architect of the legal challenge, come in and address my class and he talked about the litigation, but not only about that. The memos turned in that semester were due AFTER he lectured. The biggest difference in how the semesters went was in 2012 they heard directly from one of the main advocates for the no answer prior to writing the memo.

In 2013, there was some more cultural discussion about the case, but the students mostly carried on with the assignment and it was done largely in a vacuum. This semester was very different. Many students emailed and asked about using other sources to complete the assignment, the politics of the issues, and the case generally was brought up by students a fair amount during the give and take across the semester. Discussion of this issue and this litigation is now more widely dispersed in the culture, and the students weren’t able to write the memo in the same type of vacuum as were the proceeding two semesters. The politics and were front and center. What does this all mean?

One answer is that I am unsure.

Another answer is that I think this demonstrates how politics and public opinion intersect with the courts. We have a judicial system that adjudicates disagreements between the executive and legislative branch all the time. Typically the cases are cripplingly boring and no one watches. Sometimes they are high profile. What is plausible by way of the answer(s) the judicial branch could give on difficult cases, is at least in part determined by the political climate of the day. The advocates/litigants who are opposed to the tax credits flowing to states with federally facilitated exchanges have done a good job of discussing the issue broadly in the culture in a manner that provides the political context to allow a ruling that they would like. Their preferred ruling seems more plausible today that it would have been 2 years ago, in large part because the issue has been linked to a broader political discussion. Neither the facts, nor the law have changed.

I haven’t read the memos yet, so don’t know how good they are, but assigning the same memo 3 Fall semesters in a row has been a fascinating experience.

BCBS NC ACA Rate Increases

Quick Thoughts–BCBS NC invited me to listen in on a media call this morning and I did so. I will circle back with links later.

Blue Cross/Blue Shield of North Carolina announced their rate increases for ACA plans today, and they are relatively high as compared to those in many some states. Average premium increases for N.C. ACA plans are 13.5% (13.4% in grandfathered plans and 19.2% for transitional plans). In Maryland and Washington DC, for example, they ranged from a 1% premium decline for Bronze plans to a 7% increase in gold plans. Premium increases (and initial premiums are higher in N.C. than in many states; see below for some discussion of why). The rate increases quoted are across all metal levels (Bronze, Silver, Gold, Platinum) and are not shown for each of the metal levels.

On the phone call with BCBS NC today, they stated that as of end of September, 2014, BCBS has ~258,000 signed up in ACA plans, 239,000 persons who are in grandfathered and transitional plans, and 57,000 who bought ACA compliant plans off exchange. Also notable, BCBS NC net gained around 25,000 persons from May, 2014 to September, 2014…so more people added during special enrollment due to things like lost job, new baby, etc. than ‘dropped out’ due to non payment of premiums.

Several points on all this.

  • The premiums noted are pre-subsidy, not what individuals will pay. In year 1, 91% of the people buying ACA plans got premium subsidies, so this announcement focuses on the full premium and not what consumers will pay.
  • The ACA story will increasingly be a state-level story. In N.C. we didn’t expand Medicaid. And when the President allowed grandfathered plans (those in place prior to the laws passage that have not changed) and transitional plans (those sold after the laws passage) to be extended last year, North Carolina decided to allow this to happen and BCBS NC decided to do this as well. This likely kept some healthier people out of the exchanges. However, the premium increases for BCBS NC were similarly high in these other groups (more below). There are a series of public and private choices that occurred in North Carolina that didn’t occur in other states.
  • BCBS NC has only shown premium increase by bucket (ACA, grandfathered, transitional) and not the exact size of the pool, or number covered (they said on the call 239,000 persons in grandfathered + transitional plans, but did’t break these down). The grandfathered plans can only shrink in members and will only get smaller. This will make those pools more unstable over time, and this pool will eventually blow up (and people will go to the exchange plans).
  • The most notable thing about North Carolina’s ACA exchange in year 1 was its decided lack of competition. BCBS NC was the only insurer to sell plans in all 100 counties (they will continue that this year), and Coventry sold plans in around 35 counties. Nationally, states with less insurance competition had higher year 1 premiums, and higher rates of increase. North Carolina has low competition, and relatively high premiums.
  • There is a third insurer entering North Carolina’s ACA exchange this year (United, who plans to sell in around 85 counties I think). More competition should lead to lower premiums. The experience over the next few years will tell the tale, and it would be good if more insurers continue to come to N.C.
  • Most interesting thing to me is that grandfathered plans have a 13.4% premium increase. These are plans written prior to the ACA passage in March, 2010. These plans almost certainly have less generous benefits than ACA plans, however, historically individual purchase pools don’t last longer than several years (most people didn’t remain in such plans for more than a year or so). Most buying such care tended historically to move to other sources of coverage, and so they only people left are sicker than average. New people cannot be added to this pool, so it will continue to get worse over time. This helps to demonstrate one of the problems with the pre-ACA individual purchase market.
  • The Medicaid expansion is likely to move ahead in some form in 2015, and when this coverage expansions comes about it will help reduce premiums (unclear by how much).
  • This is the second year of the ACA coming up, but the first year of re-enrollment. Big picture keys
    • how many will sign up year 2?
    • will more competition yield lower premiums over time?
    • will even more companies come into the ACA exchanges over time?
  • Biggest thing we still don’t know (or at least I don’t): what is the distribution by county of where these covered lives are in the ACA exchange plans, not only for BCBS NC, but generally?

Advice: you should check the exchange in your county across different plans and across companies to see what premium you will pay for given plans.

Last Football Game

I am a volunteer coach for my son’s middle school football team. Our last regular season game is today (if we win, we may be in the championship game, we are 6-1). Below are the 8th graders on the team, who were honored at school this morning. A fun group. This is the 5th year I have coached 5 of these boys/young men.


Avik Roy-Transcending Obamacare

Avik Roy will be addressing my Intro to US Health Care System course on Tuesday, Oct 21, and presenting his plan Transcending Obamacare. This link will livestream, and later a tape of the event will be at the same link (8:30am-9:45am, EST).


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