Does The Cadillac Tax Live?

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JONATHAN CHAIT FEBRUARY 23, 2010

Does The Cadillac Tax Live?

David Brooks argued yesterday that President Obama's decision to postpone the excise tax means it will never go into effect:

The odds are high that the excise tax will never actually happen. There is no reason to think that the Congress of 2018 will be any braver than the Congress of today. It will probably get around the pay-go rules or whatever else might apply and it’ll postpone the tax again. The excise tax will turn into another “doc fix.” This is a mythical provision in which doctors are always about to get their reimbursements cut. But somehow they never do because the cuts are always pushed back, year after year.

Ross Douthat agrees. The legend of the mythical doc fix has become a staple of conservative rhetoric, a perfect illustration of how the savings in Obama's health care plan won't come to pass. It's the story that lets the responsible conservative oppose the most serious effort to control medical cost inflation and still sleep soundly at night.

But the story is also bunk, as the Center on Budget and Policy Priorities has explained:

In arguing that large Medicare cuts never “stick,” many critics focus on Congress’ repeated refusal to let the reductions in doctor reimbursement rates under Medicare’s “Sustainable Growth Rate” (SGR) mechanism to take full effect.

But, as the report explains, Congress didn’t intend the SGR to produce large savings. In fact, the SGR represented only 3 percent of the total ten-year Medicare savings in the 1997 deficit-reduction bill – only $12 billion of the $394 billion in total Medicare savings over ten years, as CBO estimated at the time.

Because it was badly designed, however, the SGR would actually have cut payments to physicians much more than had been anticipated and well below the level needed to keep pace with doctors’ costs. Congress’ decision to forestall these unintended cuts was therefore justified on policy grounds.

But, Congress did not simply cancel the SGR and let physician reimbursement rates grow willy-nilly. In fact, although Congress has since 2002 prevented the full SGR cuts from going into effect, it has cut physician reimbursement rates substantially below what was needed simply to keep pace with inflation. Even if Congress blocks the next scheduled SGR cut and freezes the rate at current levels, the rate next year will be 17 percent below the rate in effect in 2001, adjusted for medical inflation.

The Medicare savings provisions in the House and Senate health bills are very different from the poorly designed SGR cut. Instead, they are similar in both size and design to the past Medicare cuts that Congress has allowed to take effect.

In fact, as the Center has shown, most Medicare cuts do stick.

Now, obviously, delaying the Cadillac tax increases its political vulnerability to some degree. But I wonder why Brooks and Douthat can so casually blame Obama for this change. Unions argued against the tax on the grounds that their members had foregone wage hikes in order to obtain expensive health insurance. Providing a short-term reprieve for health plans obtained through collective bargaining was a reasonable way to keep most of the bite of the tax in place while accommodating those concerns. Alternatively, Democrats could have stiffed the unions if a few Republicans stepped forward to support the bill in exchange for tough cost control measures that Obama clearly wanted. But none would do that. It's impossible to pass health care reform without the support of labor unions or any Republican member of Congress.

The saga of the Cadillac tax is a useful example of the ways conservatives have attacked health care reform with mutually reinforcing highbrow-lowbrow attacks. Conservative politicians attack death panels and rationing and higher taxes. The conservative pundits who recognize the dishonesty of these claims may cluck their tongues a bit, but they don't put any meaningful pressure on Republican politicians to cut it out. Then the Democrats have to reduce their exposure to the lowbrow conservative attacks, which hit home with the public, by cutting back on the sacrifice in the bill. This in turn makes them vulnerable to the highbrow attacks.

I'm not saying that the conservative pundits are intentionally colluding with Mitch McConnell. I am saying that they contributed to a situation where the one guy fighting for what they claim to want most of all was under siege from all sides and had little room to take on political risk.

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posted in: jonathan chait, congress, medicare, senate, david brooks, ross douthat

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