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.
More after the jump.