WASHINGTON, July 23, 2015 − With the eventual goal of a single-payer health care system, those elected government officials who voted in favor of the Affordable Care Act (ACA) put in place a tax on private premium policies that was so high, it would force covered employees onto public exchanges.
They also made provisions to implement the plan over at least an 8-year period, figuring such significant changes, if doled out slowly, would be gradually accepted. In 2018, the imposition of the so-called Cadillac tax on such plans could be the final straw that breaks the back of privately provided health insurance.
Beginning in 2018, any private health insurance policy annually costing more than $10,200 for an individual or more than $27,500 for a family will be required to pay a 40% tax on every dollar in plan worth that exceeds those figures. This will add significantly to the overall cost, forcing companies to review their benefit packages for these individuals.
The likely end-result is that either employers will offer lower-cost policies to these employees or they will pass along the increased cost directly to the employee. Either way, out-of-pocket expenses will increase significantly for the household, given that lower cost policies tend to have higher deductibles.
Companies that employ more than 50 workers for at least 30 hours per week are required to provide those workers health insurance or pay a fine of $3,000 per employee per year. The result of this has been an explosion of part-time, less-than-30-hours-per-week jobs. In the future, this will likely lead to employers cancelling health insurance as a benefit and and simply paying the fine, forcing their employees onto the public exchanges.
The single-payer system is a terrible idea. It has been well-documented that such plans are costly and provide lower-quality healthcare. The reason is that these plans eliminate competition. While many people note that healthcare is a service different from other services, it still reacts to market forces nonetheless.
In every instance where a government-created monopoly was dissolved in favor of a competitive market, the price of the service fell dramatically, the quality of the service vastly improved and the companies ended up more profitable. How does that happen?
With competition, each firm tries to produce a better quality product and offer it at a lower price than the competition. If a firm can do that, its sales increase and its profits grow. Without any competition, there is no incentive to reduce cost and no incentive to improve quality, since the comfortable monopolist already has control of the entire market, leaving no alternative to the consumer or user.
That, essentially, is the reason why Communism (lack of competition) fails while Capitalism (active competitiveness) succeeds.
Many labor unions have, in the past, been able to increase the productivity of their workers and therefore increase their value to the firm. To make sure such workers were adequately compensated for this, labor and management agreed on a wage scale and a benefit package that reflected this reality.
Because current tax laws are such that it is cheaper to have the employer pay the health insurance bill (in before-tax dollars) rather than the employee (in after-tax dollars), high quality health care plans were negotiated and paid for by the employer, sometimes with a modest contribution from the employee. However, once the Cadillac tax kicks in in 2018, employers will no longer be in a position to offer those plans as the incentives will entirely change. Organized labor will definitely lose when this occurs, and unions are aware of it.
Both business and labor want this tax repealed. The problem is that the tax is projected to raise an average almost $9 billion per year for the next ten years. If the tax is repealed it puts a big hole into the over all Federal budget, which is still almost $500 billion per year in deficit.
Those who want to keep the tax raise a rather flimsy argument. They note that the tax will tend to eliminate overly generous health care plans that encourage people to seek more medical care than they actually need.
It is difficult to understand what they mean when they say people will seek more care than they need. If someone is sick or injured, they need care. While there may be some marginal examples of over-use of insurance, such as having a cold and immediately seeking out a specialist, a premium plan will certainly not encourage the overuse of medical professionals to treat everyday or trivial matters. Ask anyone who now has a premium plan if they currently seek more medical care than they need.
Ultimately, the Cadillac tax has to go, as do a number of other provisions in the ACA. These and other healthcare matters will become key issues during next year’s presidential campaign.
While almost all Americans seem to favor providing at least some health care for all Americans, the current law is not the way to do it. It is time to either significantly revise the ACA or simply repeal and replace it. That won’t happen under this essentially veto-proof administration. Unfortunately, reality tells us the next move to improve or replace ACA awaits the inauguration of a new president.