They Should Tax The Health Insurance Companies, Not the Workers!

[berni_mccoy]

There has been much discussion of the Excise Tax on Excessive Benefit Packages (aka Cadillac Plans) as of late, especially following the Bob Hebert op-ed in the NY Times on the tax. His outrage is shared with many here at DU. Why would Democrats create a 40% excise tax that would potentially apply to 20% of the Union Work Force? This seems completely dumb. Once those workers see that tax on their paycheck, you'd have a revolt. But they won't, because they won't be paying the tax. The Health Insurance companies will.

After reading Hebert's piece, I could not believe such a tax would pass the Senate, so I went and reviewed the relevant part of the bill. My questions were, who was going to pay the tax and could it be, in any way, pushed down to the worker?

To answer, let's look at the bill, section 9001(c) from http://democrats.senate.gov/reform/patient-protection-affordable-care-act.pdf:

‘(c) LIABILITY TO PAY TAX.—
‘‘(1) IN GENERAL.—Each coverage provider
shall pay the tax imposed by subsection (a) on its
applicable share of the excess benefit with respect to
an employee for any taxable period.
‘‘(2) COVERAGE PROVIDER.—For purposes of
this subsection, the term ‘coverage provider’ means
each of the following:
‘‘(A) HEALTH INSURANCE COVERAGE.—If
the applicable employer-sponsored coverage con-
sists of coverage under a group health plan
which provides health insurance coverage, the
health insurance issuer.
‘‘(B) HSA AND MSA CONTRIBUTIONS.—If
the applicable employer-sponsored coverage con- sists of coverage under an arrangement under which the employer makes contributions de- scribed in
subsection (b) or (d) of section 106, the employer.
‘‘(C) OTHER COVERAGE.—In the case of any other applicable employer-sponsored cov- erage, the person that administers the plan ben- efits.

So, the Health Insurance company is responsible for paying the 40% tax on excessive benefits. And because of the new MLR laws, this 40% cannot be transferred to the subscriber. It is a tax levied, not against the worker, but a tax levied against the company making the profit from the plan. And for those employers who pay any portion of an excessive HSA plan, the employer must pay tax on the excessive contribution limit. That is, if an employee requires more than $8300 in their HSA and the employer pays more than $8300 (locally adjusted) to that plan, the employer will be taxed on that excessive amount. IMO, this is to prevent companies from shoveling excessive amounts into executive plans for write-off purposes, which is currently a tax loop-hole that is being closed by the new bill.

This is why progressives are supporting this bill. Because it puts the pressure in the right place, on the Insurance Companies, and won't show up on the paychecks of middle-class workers.

[kctim]

1. What keeps them from

passing the cost along to the customers like everybody else does?

[berni_mccoy]

2. The Medical Loss Ratio (MLR).

The new law will enforce that they spend 85% of their costs on coverage. They can't pass a 40% tax on and still maintain that ratio.

[kctim]

3. Not even on things not considered "excessive benefits?"

Just curious and asking questions. Not real familiar with this issue and since my employer is dropping our plan when this is passed, figured I better learn what I can.
Thanks.

[berni_mccoy]

4. The MLR applies to all their expenses, not just on the 40% excise tax

And I have to ask, your employer is really jumping to conclusions and probably going to violate the law unless they are a small-biz.

[kctim]

5. Ok, all their expenses

thank you for that information.

I do work for a small business, but no, they are not jumping to conclusions. They will wait for the final bill and weigh their options then, before making a final judgement. But what they have said is that they and many others in their small biz groups would rather pay the fines and be done rather than deal with all the govt red tape. Having been in the military and also having to deal with social security, medicare, the DMV, filing taxes etc..., I can't say that I blame them either.
Hopefully my monthly contributions don't go up as bad as I think they will or I am effed bad.

[berni_mccoy]

10. you welcome

and I would not think your monthly expenses would go up. Despite what some say, the CBO is estimating costs will indeed go down as discussed in detail here:

http://www.fivethirtyeight.com/2009/12/why-progressives-are-batshit-crazy-to.html

[Winterblues]

6. That's the "trickle down" part, money flows up while costs "trickle down"

:shrug:

[berni_mccoy]

7. Won't happen here. The costs will be fixed firmly on the Insurance company.

[Angleae]

8. This is only if the company is not "self insured"

Like the place I work (about 1200 employees). They use Aetna for billing and administrative purposes which gets a fee to process paperwork but *ALL* medical bills come back to the company. Just because you have a card that says "Aetna" or "BCBS" from your employer does not mean that they are actually the "insurance provider". Faced with the 40% tax, the plans will be either eliminated or cut back so they don't have to pay the tax as soon as they are able.

[berni_mccoy]

9. Not sure where that fits, but it sounds like "Employer-sponsored" which implies clause A)

And therefore Aetna would pay. Remember, your company, while it is self insuring, is still paying Aetna for the service. That service isn't being done without the need for profit.

Another question: do you have a "cadillac" plan? I'd be curious to see what the numbers would be of self-insured companies who have these expensive plans. I think it would be quite a low number.

[Angleae]

11. Actually Aetna is just the administrator.

They process the claims and paperwork and send them back to the company that hired their services. None of the money for actual health care is going through Aetna. And for their services Aetna gets a fee to do so but it is probably nowhere near 40%.