- At issue is the tax breaks business get for providing employees health insurance
- Obama said only 'Cadillac plans' would be affected by this change under his law
- MIT economist Jonathan Gruber said tax breaks to employers for all plans are 'terrible policy'
- Eventually every health insurance plan would be affected by the law due to inflation
At a town hall meeting where he campaigned for health care legislation in 2009, President Barack Obama pledged to voters that he did not want any tax on health insurance plans he perceived as wastefully generous to ever impact average Americans. But in recent comments by one of the men who helped draft the legislation, MIT economist Jonathan Gruber, that is not only precisely what will happen -- but that was the intention of the tax.
White House officials had no comment, despite repeated requests by CNN.
At issue is the tax on so-called "Cadillac plans," more expensive employer-provided health insurance plans. While employers do not currently have to pay taxes on health insurance plans they provide employees, starting in 2018, companies that provide health insurance that costs more than $10,200 for an individual or $27,500 for a family will have to pay a 40 percent tax.
At a town hall meeting on health care on July 23, 2009 in Shaker Heights, Ohio, Obama explained that the thinking of the Cadillac tax was to target plans that spend unnecessarily and excessively, thus driving up health care costs, such as a $25,000 plan, "so one that's a lot more expensive and a lot fancier than the one that even members of Congress get."
The thinking, Obama explained, was that "maybe at that point what you should do is you should sort of cap the exclusion, the tax deduction that is available, so that we're discouraging these really fancy plans that end up driving up costs."
The President at that point hadn't yet signed off on a Cadillac tax (he would eventually) but he did make the pledge: "what I said and I've taken off the table would be the idea that you just described, which would be that you would actually provide -- you would eliminate the tax deduction that employers get for providing you with health insurance, because, frankly, a lot of employers then would stop providing health care, and we'd probably see more people lose their health insurance than currently have it. And that's not obviously our objective in reform."
That promise is completely at odds with how Gruber describes not only that provision of the Affordable Care Act, or Obamacare, but the intention of that provision.
In one of the videos that surfaced in recent days in which the man described by the Obama campaign as having helped to write Obamacare describes the many ways voters he calls stupid were easily misled about the bill by those pushing it, Gruber says the Cadillac tax will do exactly what the president pledged it would not -- dissuade employers in general from providing insurance for its employees.
"Economists have called for 40 years to get rid of the regressive, inefficient and expensive tax subsidy provided for employer provider health insurance," Gruber said at the Pioneer Institute for public policy research in Boston in 2011. The subsidy is "terrible policy," Gruber said.
"It turns out politically it's really hard to get rid of," Gruber said.
Gruber said the only way those pushing for Obamacare could get rid of the tax subsidy for employer provider health insurance was to tax the more generous, or Cadillac, plans -- "mislabeling it, calling it a tax on insurance plans rather than a tax on people when we all know it's a tax on people who hold those insurance plans."
The second way was have the tax kick in "late, starting in 2018" and have its rate of growth tied to the consumer price index instead of to the much higher rate of medical inflation. Eventually, the 40% tax on the more expensive plans would impact every employer-provided insurance plan.
"What that means is the tax that starts out hitting only 8% of the insurance plans essentially amounts over the next 20 years essentially getting rid of the exclusion for employer sponsored plans," Gruber said. "This was the only political way we were ever going to take on one of the worst public policies in America."
By 2018, Gruber said, those who object to the tax will be obligated to figure out how to come up with the trillion dollars that repealing the tax will take from the U.S. Treasury, or risk significantly adding to the national debt.
This is obviously exactly what Obama told voters in 2009 he had "taken off the table." It is exactly a process to "eliminate the tax deduction that employers get for providing you with health insurance" that five years ago Obama noted would result in "a lot of employers then would stop providing health care, and we'd probably see more people lose their health insurance than currently have it."