Gruber’s “Cadillac-Tax” Wage-Growth False Promises Hurting American Workers

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The “Cadillac tax” on overly generous health insurance plans seemed fairly reasonable at the time the Affordable Care Act (ACA, or “ObamaCare”) was enacted. But as a close analysis of chief architect Jonathan Gruber’s statements shows, it was intended as a stealth mechanism for financing the “reform,” writes Dana Beezley-Smith, Ph.D., in the fall issue of the Journal of American Physicians and Surgeons.

A 40% excise tax on insurance plans valued above a dollar threshold, the Cadillac tax takes effect in 2018. Although assessed against insurers, it will be passed along, through higher premium costs, to employers. Because the threshold is indexed to ordinary inflation rather than the higher rate of increase in healthcare costs, the tax will eventually target even the skimpiest policies insurers offer, Beezley-Smith explains.

In its scoring of the 2009 Senate bill, the Congressional Budget Office (CBO) projected that the tax would reap $201 billion from 2013 to 2109, and that “receipts would grow by roughly 10 percent to 15 percent per year in the following decade.”

Remarkably, very little of this revenue was expected to result from direct taxation of insurance plans. Companies were expected to devalue—or drop—coverage to avoid the tax. Instead, most receipts were thought to accrue from payroll and income taxation of worker pay raises, Beezley-Smith writes.

This is how the tax was portrayed as a boon to workers, rather than a financial burden. They were supposed to get a pay raise—and not notice that taxable wages were replacing tax-free benefits.

The wage-growth theory was heavily promoted by Gruber and others. Beezley-Smith shows that, contrary to their assertions, there is little evidence to support this theory. Workers might pay for benefits in decreased wages, but cutting benefits does not necessarily result in pay raises. The theory “flies in the face of all reason,” said journalist Jane Hamsher.

Nevertheless, “one man [Gruber] and his model” held sway “over the CBO, the White House, and Congress alike,” according to Jeffrey Anderson of The Weekly Standard.

Workers are paying more and getting less. “Such sacrifice was confidentially considered necessary to finance the overhaul. But no one told the American worker,” Beezley-Smith writes.

“Perhaps the only silver lining to the Gruber-CBO affair is that we learned of the need for greater accountability at CBO,” she concludes.

The Journal of American Physicians and Surgeons is published by the Association of American Physicians and Surgeons (AAPS), a national organization representing physicians in all specialties since 1943.

PDF of article: http://www.jpands.org/vol20no3/beezley-smith.pdf

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