“Of course a really good health insurance plan costs more. Of course it makes government efforts to limit healthcare goods and services look bad. No, it’s not egalitarian. But you know you want one...”

Today marks the beginning of what is bound to become a regular new feature on The Road to Hellth.  It’s called The Demon Channel.  Each time we tune in we’ll discover which aspect of healthcare is being demonized this week by our political and government leaders.  Yes, Satan is back in style, and this time he’s wearing a white coat.

“But isn’t healthcare a good thing?”, you may ask.  “After all, people really want access to those doctors and nurses and medicines and things.  In fact, isn’t having ready access to them what the fuss is all about?”  Well, yes.  But you see all of those healthcare goods and services cost money, and the government has already promised to deliver far more of them than it can afford.   (Or to be more specific, it can’t afford them under the ridiculous and irrational system of rules, regulations, price controls and hidden rationing mechanisms that the government and private insurers have created over the past twenty years.)  So what’s a government to do?  Especially a government that was elected under the banner of “change” and end to special interest mediated “business as usual”.

The answer is simple.  If there’s a medical benefit that you can’t supply through a government-run health system (e.g., Medicare, Medicaid, the Veterans Administration or the military health system), something that costs money more money than you feel like paying or an aspect of healthcare that makes you look foolish, the easiest thing to do is demonize it.  Turn the desirable good into an undesirable “bad”.  If you’re successful, your voters and the public at large will come to loath whatever it is, and praise you and your colleagues for either not providing it or actively eliminating it.  (Readers of the literary classic Animal Farm, will recognize this as the “four legs good, two legs bad”, approach.)

With this post, we’ll take a look at the newest Satan on the healthcare scene: the so-called “Cadillac” health plans that are scheduled for taxation under the healthcare reformlegislation recently passed by the Senate.  For those of you who may have been preoccupied with Christmas or living overseas when this bill passed, a “Cadillac” health plan is simply defined as a health insurance plan with a high annual premium – in this case more than $8,500 for an individual or $23,000 for families.  As discussed in the Slate article ‘Do I Have a “Cadillac Plan”?’, the actual benefits of plans costing this much can vary considerably depending upon who you are and how much financial and political clout you and your business have behind you.  If you’re the CEO of an investment bank that took billions of dollars from the government, your $40,000 health plan essentially has no limits and no restrictions.  On the other hand an older owner of a small business in Massachusetts (a  state that mandates the purchase of health insurance under penalty of law), and who has poor health or a pre-existing condition might be fortunate to be able to find and buy an $8,500 policy.  And then, of course, there are labor unions such as the longshoreman, miners, construction workers, utility workers and others, who negotiated these expensive benefit plans but were specifically excluded from the Senate taxation limits that apply to everyone else.  (See pages 1,943 and 2,387 of the legislation.  Rumor has it that these unions tend to donate heavily to, and vote for, the Democratic politicians who wrote the bill.)

Why are these high cost plans evil?  If you can afford them, they sound like a great idea.  Do they increase the healthcare costs of others?  Do they cause disease?  Do they take healthcare services away from others?  Well, no.  It seems that their badness lies in the fact that they cost someone, somewhere a lot of money, and deliver better benefits than the rest of us are supposed to expect.  Here are a couple of explanations.

White House spokesman Robert Gibbs says that: “The best way to bend that cost curve is to go after and work on eliminating excessive Cadillac plans that people at Goldman Sachs and big bankers might get.”  (Strangely enough, he didn’t mention the members of all of those excluded union members, even though there are numerically far more of them.)  Meanwhile, MIT economics professor Jonathan Gruber wrote in The Washington Post that:

“The Senate assessment on high-cost insurance plans has much to recommend it, which is why it is almost universally favored by health policy experts. It would reduce the incentives for employers to provide excessively generous insurance, leading to more cost-conscious use of health care and, ultimately, lower spending. In other words, it “bends the curve.” It would also be progressive, in that it would take from those with the most generous insurance to finance the expansion of coverage to those without insurance.”

For those of you who don’t yet know the politicospeak, the “curve” refers to the fact that the United States is paying more for healthcare goods and services every year.  Left unchecked, this rate of spending is far more than Americans (or anyone) could possibly afford.

The Infamous Healthcare “Cost Curve”

“Bending” the curve refers to the process of reducing or even reversing the expected rate of growth in national healthcare expenditures.

All of these arguments sound perfectly reasonable if we don’t think much about them.  It sounds as if all high-cost plans should be exorcised from the market entirely because they’re bad for the nation.  In fact, it sounds pretty unpatriotic to have one.

Since these plans are being so nicely demonized, it’s only fitting that we use this opportunity to play the devil’s advocate.  Let’s look at Professor Gruber’s reasons for taxing the dickens out of these plans one by one.

“It would reduce the incentives for employers to provide excessively generous insurance, leading to more cost-conscious use of health care and, ultimately, lower spending.”

Well this is almost certainly true.  But is this an inherently good thing?  What if some people (like the union members), want to be rewarded for their work in the form of healthcare benefits?  Is that inherently any better or worse than being rewarded in the form of cash bonuses, trips to Jamaica, gold bullion or gift certificates for chocolate cake?  After all they would have received the compensation in some form, and it’s not as if they’re taking those healthcare benefits away from anyone else.  So what if they prefer medical care to gold or chocolate cake; personal preferences are the cornerstone of supply, demand and the free market system.  As long as the insurance premiums are fairly priced and not being subsidized by other policy holders, is anyone actually being harmed by the fact that some people get these benefits and others don’t?

In fact, Professor Guber does point out that the paying people in healthcare benefits rather than cash, vacations or chocolate cake does hurt someone – namely American taxpayers.  Your see, about sixty years ago, our government in its infinite wisdom decided that healthcare benefits would not be considered taxable income, while all other forms of income would be.  In this way the federal government actually unfairly subsidizes health insurance that is provided by businesses to their employees, but not health insurance that individuals have to buy on their own.  The more expensive the health plan, the bigger the subsidy.  You must admit that this hardly sounds fair.  Why should people who pay for their health insurance premiums through their employer receive tax benefits that others don’t?

That’s an excellent question, but it’s not one that either Professor Gruber or our elected officials seem to wish to address in their discussions.  Instead of correcting  the basic defect (i.e., reducing or eliminating the rather unfair tax break for employer-provided insurance premiums as opposed to individually paid premiums), our elected leaders decided to arbitrarily tax the high-cost insurance benefits of some people, but not others.  (That doesn’t exactly sound like “equal protection under the law”, but sadly, I do not have a law degree.  Maybe an attorney could explain why it’s fair and logical?  Anyway, let’s move to the rest of Professor Gruber’s comments.)

“In other words, it “bends the curve.” It would also be progressive, in that it would take from those with the most generous insurance to finance the expansion of coverage to those without insurance.”

Well, that’s also true as far as it goes.  Total healthcare spending would probably be reduced, but how would that benefit any of the rest of us?  It’s not as if those benefits will magically be offered to someone else.  And if progressivity is what you’re after, an even more progressive idea would be to remove the income tax deduction for all employer-paid health insurance.  Suddenly everyone would be on an even, progressive footing based upon your healthcare compensation.  Those who receive free medical coverage would suddenly be paying taxes based upon the true value of their compensation.  Meanwhile the tax burden of poor, unemployed and self-employed people who don’t receive this perk would remain unchanged.  Doesn’t that sound both simpler and fairer?  Would this approach “bend the healthcare cost curve”?  Maybe, but certainly no more and no less than the more complex and less honest approach of taxing some people with high-benefit policies, but not others.

All of which leaves us to ask, what’s the real reason for all the fuss over these plans?  I mean, it would be one thing if the government or taxpayers were paying the premiums, but they’re not.  It would be another thing if the true intent were to eliminate the unfair subsidy of employer-paid healthcare premiums by the taxpayers, but if this were the case it’s unconscionable to exclude labor unions – the largest group of high-premium beneficiaries by far.  Perhaps “Cadillac” plans are simply and easy populist target?  Everyone can relate to sticking it to the fat cats.  That makes sense, but why not simply tax the fat cats directly as the House bill would do?  The answer is that a “Cadillac” tax does one thing that simply taxing fat cats does not: it reduces medical expectations.

Other things equal, anyone in their right mind would like to have unlimited access to the medical wonders that a high-premium plan provides.  Imagine…the best doctors, the best medications, the best surgeries, the best hospitals, and all without the hassle of referrals, pre-authorizations, asking permission or incurring out out-of-pocket expenses.  What a life!  And what a problem for our political leaders!

You see, it’s just not going to work if the vast majority of people see their medical options shrinking as a result of government guidelines, regulations and mandates, while there are still a few folks sitting around with access to the best healthcare money can buy.  Not only does it look bad, but it’s likely to make ordinary people ask why they have to take outmoded medications and beg to see a specialist for their potentially fatal asthma, diabetes and heart conditions, while others don’t.   The recent flap over mammograms is a good example.  (See DrRich’s Last Word on Breast Cancer Screening and Mammography Guidelines Cause Confusion, Division for excellent discussions of this topic.)  The key motivation for the changes in these recommendations was to save money rather than to achieve any particular health benefit.  It sends an unpopular message when your wife, sister or mother won’t receive this screening, while those with high-cost plans will.

Yes, it’s best to simply remove those high-cost plans altogether.  Consider it a step closer to an American healthcare paradise.