HILLARY CLINTON rolled out several modest but serious health-care proposals last week. This week she canceled out any claim to responsibility on the subject by calling for repeal of the “Cadillac tax” on employer health-care plans.
The tax, set to take effect in 2018, is a key component of President Obama’s health-care plan and its most effective means of controlling health-care costs. Without it, Obamacare becomes one more entitlement program facing ever-rising health-care costs that the country will eventually be unable to afford. Ms. Clinton said she would find ways to make up the revenue the tax would generate, but that would not repair the principal damage. She also would have to find alternate ways to control health-care costs, and that seems unlikely. As the Huffington Post’s Jonathan Cohn wrote , “The Congressional Budget Office made it clear that, without something like the Cadillac tax, the health care law was unlikely to reduce health care spending.”
To understand why, you have to understand that health benefits are a form of employee compensation that the federal government doesn’t tax: The government subsidizes employer-provided health insurance, in other words, but not wages. This encourages firms to compensate people in health plans instead of in dollars, and the resulting distortion tends to irrationally push up health-care spending.
The Cadillac tax wouldn’t scrap the tax preference for employer health benefits, but it would cap it; employers would pay a tax on particularly expensive health plans. Unions that have negotiated generous plans naturally oppose this, but there’s no rational reason that taxpayers, including many struggling to pay for their own insurance, should subsidize this particular inequality. The tax would restrain health-care spending over time as companies sought to keep their plans from being subject to the tax; they would be more apt to channel compensation into wages instead. The tax also would raise $87 billion over a decade to help pay for the Affordable Care Act’s health-insurance expansion.
It’s hard to say which would be more discouraging: that Ms. Clinton knows this is a poor policy call and made it to appease politically influential unions, or that she doesn’t know this is a bad choice. Her latest about-face, coming just after her turnabout on the Keystone XL pipeline, is even more of a pity because she had recently proposed several sound ideas to improve access to health care. These include changes in health insurance rules to help patients with chronic illnesses afford their drugs and to allow people to see their doctor three times a year without triggering their deductible. She also endorsed an end to “pay-for-delay” arrangements that keep cheaper generic drugs off the market.
Yet, of all the health-care proposals Ms. Clinton has offered, ending the Cadillac tax is perhaps the most likely to become law because the tax is as unpopular as it is essential. Mr. Obama was content to have it take effect only after he left office, leaving the leadership challenge to his successor. One would-be successor has just flunked that challenge.