Obama Backs Gentler Version Of Cadillac Health Tax President Obama's health plan includes the so-called Cadillac tax -- a controversial excise tax on high-end health insurance plans. But even proponents of the excise tax say it may be too weak to do much.
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Obama Backs Gentler Version Of Cadillac Health Tax

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Obama Backs Gentler Version Of Cadillac Health Tax

Obama Backs Gentler Version Of Cadillac Health Tax

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ROBERT SIEGEL, host:

This is ALL THINGS CONSIDERED from NPR News. I'm Robert Siegel.

President Obama has finally released his health care plan. It includes a controversial excise tax, the so-called Cadillac tax, on high end health insurance plans.

NPR's Joanne Silberner reports on how that tax would work.

JOANNE SILBERNER: First, you've got to understand the basics. The proposed tax would be on the most expensive health insurance plans, many of which let you go to any doctor, anytime you want, for free. Many of the people who have these plans are union members who've bargained away wages in return for the rich benefits, and many are well off people who can afford the plans. There is a purpose to taxing just the Cadillac plans, says Henry Aaron, a senior economist at the Brookings Institution.

Dr. HENRY AARON (Senior Economist, The Brookings Institution): What it is expected to do is to discourage employers from providing compensation through these hyper-generous health insurance plans.

SILBERNER: The idea is to get employers to offer lower cost plans and avoid the tax and presumably give workers the difference in higher wages. Lower cost health plans are good, says Henry Aaron. With their co-payments and deductibles, they'd make doctors and patients more cost-conscious.

Dr. AARON: If providers know that patients face some cost for the care they receive, they have an incentive to provide that care more in a more cost-effective way.

SILBERNER: And patients would be cost-conscious as well, he says. Aaron is a liberal economist. Conservative economist Gail Wilensky also likes the idea of an excise tax on health insurance.

Dr. GAIL WILENSKY (Economist): Well, it's a good thing in that health care is expensive and you want to have people think about how much they're spending on health care relative to how much they spend on all the other necessities and luxuries of life.

SILBERNER: So, after much discussion last year, the Senate included a health insurance excise tax, but the House did not. One reason, says Lawrence Mishel of the Economic Policy Institute: fairness.

Mr. LAWRENCE MISHEL (President, Economic Policy Institute): Part of the problem is that plans which cost a lot may cost a lot because people in those plans live in high cost areas, that they are older and sicker. And the high cost plans are not necessarily ones that are, you know, are just rich in the benefits provided to people.

SILBERNER: In his effort to rein in health care costs, Mr. Obama went ahead and included the tax in his new proposal, but in a scaled back way. It doesn't kick in until 2018, five years after the Senate plan would have. And he significantly increased the premium cost at which the tax would kick in. Economist Gail Wilensky says the changes water it down too much.

Dr. WILENSKY: In a health care reform legislation package that has had precious few cost-containment measures, they've taken one of the few cost-containment measures and made it much weaker than it's been. It's really disappointing.

SILBERNER: But economist Henry Aaron says, at least, it's something.

Dr. AARON: I'd like it to be tighter than it is, but if this is all that the political system is able to produce at this point, it certainly is better than the status quo.

SILBERNER: The unions fought fiercely against the Senate plan, but they're willing to live with this one. They helped negotiate the details. Andy Stern heads the 2.2 million member SEIU.

Mr. ANDY STERN (President, SEIU): The Obama plan is a big step forward. I think it's you know, takes us 90 percent of the way there. And I think he did a very responsible job. Yeah, we can support it.

SILBERNER: Which is a start as far compromises go, but there are plenty of moving parts in the Obama plan leaving the fate of the excise tax uncertain.

Joanne Silberner, NPR News.

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