In case you aren’t steeped in the Affordable Care Act’s wonky details, the Cadillac tax is a 40 percent excise on expensive health-care plans. The policy was unlovable, opaque and oddly structured. Yet it earned grudging wonk respect, even from ideological opponents, because it was the first serious attempt to curtail the tax break for employer-sponsored health insurance.
Policy experts loathe the employer exemption, an unintended legacy of World War II-era wage and price controls. For decades, it has encouraged employers to funnel ever-more employee compensation into the form of health benefits. Employees consequently consumed more services than they otherwise would have, and — surprise! — now health-care spending accounts for about 18 percent of gross domestic product.
Politically, however, employer-sponsored health insurance has proved untouchable. Enter the Cadillac tax, which was supposed to make especially generous insurance extra-expensive, encouraging employers to switch into more-modest plans.
That was one way the Obama administration hoped to “bend the cost curve,” a major plank of the whole program. If Obamacare could control health-care cost inflation, its architects could promise voters that their premiums would go down, and cost control would help keep the program’s expenses from triggering a taxpayer revolt.
So Obamacare started shifting reimbursements away from paying for treatment and toward paying for quality — which, the administration hoped, meant paying less. Meanwhile, the Cadillac tax aimed to discourage consumer overconsumption. Even better, it would also raise a bunch of revenue.
Critics pointed out that the Cadillac tax, like many of Obamacare’s other revenue-raising provisions, would encounter fierce political resistance once it kicked in. And that it therefore probably never would. The critics appeared vindicated as Congress kept delaying that fateful day — a 2022 launch is the current plan. But now Congress seems eager to dismantle the thing entirely.
All of which offers some lessons for would-be reformers.
The first is that bending the cost curve has failed pretty decisively. The best of Obamacare’s supply-side reforms may have slightly reduced overtreatment, while the worst of them may have accidentally caused the deaths of thousands of elderly patients. The trends in cost growth haven’t been much altered. As for throttling consumer demand, that never really got started.
Expanding coverage thus probably means embracing the only feasible alternative for cost-control: paying everyone, from hospitals to doctors to orderlies, a lot less. Though this won’t be politically much easier. Washington state Democrats recently tried to create a public option for its exchanges along these lines and couldn’t pass it until they watered down the reimbursement cuts.
The second is that there’s no magic pot of money lurking in the health-care system, ready to be painlessly liberated and used to fund coverage expansion. Every revenue stream is benefiting some sizable interest group, from medical billing clerks to generously insured labor unions (whose opposition to the Cadillac tax has undercut its support among Democrats). Reformers are left with the unpalatable choice of taking something valuable away from those voters, who will fight to the death to keep it, or jacking up taxes to unprecedented levels.
Finally, the saga of the Cadillac tax demonstrates the vital need for political consensus on any really ambitious policy agenda. Some Democrats seem to hope they can pass Medicare-for-all now and build consensus on any painful parts later. Obamacare’s troubled history illustrates why that’s unwise.
Democrats passed Obamacare in 2010 while a majority of the country still opposed the law, ramming it through with an obscure parliamentary maneuver and on a straight party-line vote. With such weak political support, it was vulnerable to future legislators, who spent the better part of a decade slowly picking the system apart — mostly Republicans at first, but now Democrats seem eager to help strip the carcass.
Some elements of Obamacare, such as coverage for preexisting conditions, are protected by strong voter support. But then, those provisions were always popular. There’s still little enthusiasm for the unpopular bits, the taxes and cost controls, needed to keep the system running as its architects envisioned.
So now comes the test: Will any 2020 presidential hopeful be brave enough to frankly describe the trade-offs needed to remake the health-care system? Will anyone dare to undertake the fraught process of building a consensus for enduring reform? Or are we in for another round of overoptimistic promises and underwhelming results?