Growing up, one of my favorite relatives was my Aunt Libby – who was a real pistol. Those of you who are Hoosiers and who ever frequented Libby’s Deli at the downtown Indianapolis City Market (Governor Bowen and Mayor Lugar could often be found at the lunch counter munching on Libby’s famous Bar-B-Q sandwiches) would have known her well. She was a fun-loving, gregarious, outspoken lady. Anyway, when someone said something so outrageous that it couldn’t possibly be true, she would often add in a mocking tone, “…and that must be how they make rhinoceroses fly.”

 Which brings me to today’s discussion on a tax found in the national health care bill.

 Those of you following the ObamaCare health care debate may have missed an important measure that appears in the Senate’s version of the legislation. If this bill is signed into law, health insurance policies the cost in excess of $8.500 annually for individuals and $23,000 annually for families would be levied an excise tax of forty percent on the excess.

 The tax would be imposed on the health insurance companies, but we all know how it would simply get passed down to those of us paying the premiums. Senators have referred to the tax as only affecting “Cadillac Health Care Policies”. I’ll tell you to insure my family of five, I am paying “Cadillac” rates, but feel like I have a Chevy policy with high co-pays and deductibles.

The idea behind the law is to accomplish several goals. President Obama and some economists say the tax will help to reduce long-term health care spending. The theory behind it is by purchasing lower premium policies, individuals and families would face higher deductibles and co-payments. The ivory tower economists predict that if we all had to pay higher deductibles and co-payments then presumably we’d be more judicious in spending health care dollars.

Further, with employers having an incentive to spend “less” on health insurance, the result would theoretically be a decrease in paying for health care with pre-tax dollars and a corresponding increase in “post tax” health care spending, the net effect of which is higher income tax revenue to the federal government on the same amount of gross income.

A fascinating aside to this theory is that the bill exempts (until 2017) certain state and local government and existing union health insurance contracts from the excise tax. This leads me to believe that President Obama’s economists conclude that union members wouldn’t be more judicious in their spending when faced with higher deductibles and co-payments. So we should just leave those folks alone and not tax them anymore.

On the other hand, perhaps the Democrats in power simply want to exempt their favorite sons and daughters from a tax burden that they intend to impose on the rest of us. But that might just be cynical thinking on my part.

Critics to the theory suggest that the excise tax will simply force employers to offer thinner benefits, increasing the out of pocket costs like deductibles and co-payments in an effort to reduce annual insurance premiums.

As a partner in a five man law firm with twenty employees, I can tell you with firsthand experience that the result of this legislation would be lower benefits to our employees, and a disincentive to hire more staff until absolutely necessary. I will also tell you that my employees who would be forced to pay higher deductibles and copayments don’t have any additional cash from which to pay them. So we hurt employers who might otherwise hire more employees and provide benefits – and we hurt employees who already are scraping by to make ends meet.

How’s that for helping a sagging economy that has recently experienced unprecedented job losses?

Proponents of the excise tax suggest that it will raise revenue to help pay for insuring the uninsured – in other words – by taxing those of us who have the best health insurance policies for our failure to negotiate fees for medical services – then this will result in all of us paying less for health care and more of us getting health insurance coverage.

I don’t know about you, but when I call the radiologist for an MRI – I haven’t found them amenable to negotiating their fees. I don’t blame the doctors and hospitals for that –their recordkeeping responsibilities are burdensome to the point of absurdity. I can’t imagine a world where they negotiate different rates for different patients – or patients even having an ability to so negotiate rates.

What else can you expect from a government where many members of Congress and our sitting President have not once – in their entire lives – ever had to meet a payroll or look to provide the best health coverage at a reasonable rate for their employees?

In summary, the ivory tower theories justifying a health insurance excise tax must be how they make rhinoceroses fly.

©2010 Craig R. Hersch