September 30th, 2015

A Few Remarks about Promises to End the 40% Excise Tax on Cadillac Health Care Plans

All right, let's start by pointing out a few really obvious things.

(1) If you know any teachers, you know that they almost never get raises. Their salaried compensation is surprisingly low compared to the amount of training and accreditation they must get in order to be eligible for and retain their positions spending time in a room full of appalling young people, many of whom would rather be anywhere else. The life of a teacher is not an easy one, and by their salary numbers, they are woefully underpaid.

(2) If you know any teachers, or you live in the Northeast and go to your town's school budget meetings, you may also be aware that teachers live in a completely different galaxy from most other people you know (well, unless you are a teacher, in which case you mostly know other teachers) in terms of their co-pay and deductibles. That is, many teachers' unions have successfully lobbied for zero cost (to the employee) or very low cost (to the employee) health care plans. Employee contribution to premiums is often on the order of 10% of the total premium. Co-pays are sometimes as low as $5. Etc.

(3) Not very many people have "Cadillac" health plans. Of the people who _do_ have "Cadillac" plans, most are people whose compensation is NOT in the six figure range. In fact, quite a lot of "Cadillac" plans are the result of detailed and vigorous union negotiations, especially for teachers and other public sector unions. These are not rich people, and since their health care has _barely held even_ for the last 1-2 decades, and they haven't seen any pay raises over the same time period, it boggles their highly educated and wildly intelligent minds that they could have a "Cadillac" plan.

What we have here, is a failure to communicate. While the rest of the insured families in this country have experienced soaring co-pays and deductibles, increasing percentages of premium responsibility for the employee, and "discounts" for participating in "wellness" programs, not so for people who have "Cadillac" plans, who have "benefited" invisibly to them from status quo bias in negotiations and huge positive feelings in the country as a whole about the fact that teachers are highly educated, intelligent, motivated and organized people who are willing to educate our children. (I know, honestly, we should just give them everything because who among the rest of us could possibly stand the idea?)

Worse, because most bargaining agreements last for a period of years, and because the 40% over the threshhold "Cadillac" tax will take effect in 2018, and because while most companies have already made changes to their health care plans to avoid this tax, the only people who are likely to trigger it are teachers and other unions who are good at preserving really amazing health care plans. Some districts are starting to try to communicate to the affected union members what their total compensation is, and let me tell you, a teacher whose taxable pay is $4x,000 who is told that her total compensation is over $100,000 has a tendency to opt for paranoid conspiracy thinking before it occurs to her that there might be a reason why she is paid so little and her husband paid so much -- but they always use _her_ benefits, not his.

Look, this is a huge women's issue, and not in the obvious way. Women are teachers, and teachers have "Cadillac" plans. So women teachers get a lot of disrespect from their better paid spouses, even tho their total compensation is equal (or the woman's total compensation is greater!), BECAUSE THE HEALTH CARE MONEY IS INVISIBLE. The 40% over the threshhold excise tax was intended to do a lot of things, not least expose this invisible money, and get unions to direct their considerable power and efforts to something a little more worthy than maintaining a zero or very low cost health plan for their senior members.

Bernie Sanders and Hillary Clinton are both nakedly pandering to ignorance and union power by promising to do away with this tax. It's a terrible idea. This tax has a lot of power to reduce the growth in premiums (by a lot). It has the power to redirect union energy away from an incredibly narrow focus on a fundamentally regressive goal (go read any SEIU story about people working in hospitals that can't afford health care, and you'll grasp the basics of how regressive zero and low cost health plans are as a focus for public sector union politics), and hopefully towards something more useful (oh, I don't know: maybe more transparency and better governance on pension funds for public sector employees? Pressure for better financial regulation in general? Better recognition of all the hours teachers spend that aren't in the classroom but absolutely necessary for the classroom to function? I'm sure actual teachers will come up with better actual programs. But heck, union pressure on the Washington state legislature to pass income tax of some sort to fix what the WA Supreme Court has been yammering about for years would be pretty amazeballs).

Worse, Sanders and Clinton, by framing it as a Chevy vs Cadillac issue (when we all know perfectly well that union members are driving Hyundais, Kias, Hondas and Toyotas like the rest of us), they are pointing everyone's attention at the rear view mirror. Rip that fucker out and throw it out the window. That's where we _were_. Govern so we get to where we want to _be_.

Or at least pay attention to what's right in front of the damn car.

Some Math

Let's say you have a health care plan which triggers the 40% over the threshold by $1000. If I have understood things correctly, somebody is now on the hook for about $400 worth of taxes, plus a lost ability to deduct some amount of money as a business cost (I assume that, too, is an over the threshold thing, but I'm less certain of that).

I'm going to phony up some of the numbers to try to make this easy. Let's imagine instead that you received the $11000 (plus) as ordinary income. Between you and the employer, payroll taxes (SS + M) would have been paid to the tune of approximately 15% (half by you, half by the employer). That tax starts at dollar one, and at least the M part has no cap, altho if you are highly paid enough, the SS would be capped. But if you make that much money, nobody is going to sympathize with your But It's a Chevy Tax argument anyway, so you may depart from this conversation now.

That tax would have been $1650.

And we have not even entered into the possibility that you maybe owe some state, local or Federal income tax money on these dollars.

Someone needs to explain to me _why_ 40% over the threshhold is taxing higher than would have been taxed in a received-no-health-care-just-cash-direct-deposit scenario. I eagerly await enlightenment. (And for the record, I checked -- money paid towards health care premiums by employers or employees in an employer plan does not incur payroll tax, income tax, etc.)

Last day of the quarter -- go forth and donate!

You have a couple hours on the East Coast before the FEC deadline, and more if you are further west, unless I've well and truly misunderstood how this all works. Sure, it seems like it's an off year, but not for Virginia House of Delegates and a bunch of them are up for grabs. If you have been unhappy with the weird stuff they've been up to in the last few years, here's your chance to donate to someone looking to make a change.

And obviously, as we enter the last quarter of the year, things are really starting to come together for the 2016 federal races, and we (obvs) won't have an incumbent running for the White House. So if you have a few spare shekels, contemplate giving them to the candidate(s) who best represent your highest ideals, even if you aren't one of their voting constituency. We're allowed to by law, and it's one way to make your voice heard.