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The Obamacare Idea Conservatives Should Be Cheering, But Aren't

Obamacare hate is a full-time occupation on the right. But a story from Monday’s New York Times is a reminder that some pieces of the law should have conservatives celebrating, for the same reason they are leaving liberals like me a little queasy.

The story is about Obamacare's "Cadillac Tax," which isn't really a tax so much as a convoluted attempt to undo an existing tax break. To simplify things a bit, the government today doesn't treat employer health insurance as taxable income. That makes a dollar of insurance worth more than a dollar of wages, giving both employers and employees incentive to load up on insurance.

Most economists think that contributes to rising health care costs, since people with more insurance tend to spend more on medical care. The Cadillac tax would limit the value of the tax break, effectively reducing that incentive and, in theory, reducing health care costs for everybody over the long run. (The mechanism is complicated; read here if you want an explanation of how it works.) 

In an ideal world, insurers and employers would respond to the Cadillac tax by finding more efficient ways to pay for care, so that workers would end up with the same access to and quality of medicine. They'd just pay a little less for it. One way to accomplish this would be to switch employees over to a smartly managed care insurance plan—think Kaiser Permanente, where the physicians and nurses coordinate with each other, focusing on the most effective treatments and long-term health of the patient.

In the real world, alas, employers frequently find it easier just to shift costs over to their employees. They change their plan benefits, so that workers pay more for each prescription, hospital visit, and the like. The Times story, by Reed Abelson, suggests employers are doing just that.

It’s difficult to pinpoint how much the Cadillac Tax is responsible for these shifts, given that employers were looking for ways to shift costs long before Obamacare came long. The tax doesn’t start to phase in until 2018. And the Congressional Budget Office, in its most recent revision of projections on Obamacare, said that it now expects fewer plans to hit the tax threshold when it first takes effect. Still, employers are certainly talking about the tax. (I’ve heard the same chatter.) If employers are reducing their coverage in response, then—as Matthew Yglesias notes—it’s working precisely as the economists predicted it would.

That doesn't mean the change is popular. People don't like to hear that they'll have to pay more the next time they go to the doctor. Unions are particularly wary of the change, since many of their members fought hard for the generous financial protection that the Cadillac Tax will curb. But the real danger is for the chronically ill, who run up huge medical bills year after year—and for whom higher out-of-pocket expenses can be a real hardship. The Times article focuses on one such person—a woman with cystic fibrosis who said she had to drop out of school and take a second job, in order to pay the bills from her higher deductibles.

Liberals who support or at least tolerate the Cadillac Tax do so because the economists have convinced us it might truly reduce costs in the long run. We also know that other parts of Obamacare, like tax credits for purchasing insurance and guarantees of coverage for people with pre-existing conditions, will help the sick and the poor far more than the Cadillac tax will hurt them.1 Conservatives can't stand this kind of spending and regulation, of course. But they should have no such hostility to the Cadillac tax.

On the contrary, writers like James Capretta and Robert Moffit have long called for reducing or eliminating the tax breaks for employer sponsored insurance. They subscribe to the same economic logic that compelled Obamacare's architects to include the provision in the first place—that, without the favorable tax treatment, employers and insurers will be more thrifty. The only difference is that conservatives think the tax incentives are even more central to the cost issue than liberals do. And, unlike liberals, conservatives don’t seem particularly troubled by the implications for the chronically ill. Either that, or conservatives do a remarkably good job of disguising their anxiety.

The Cadillac Tax will not work as quickly or smoothly as conservatives would prefer. And that's fair grounds for criticism. But surely the concept deserves a kind word or two somewhere on the right—unless, perhaps, opposition to Obamacare is less about what’s in the law and more about who signed it.

Jonathan Cohn is a senior editor at the New Republic. Follow him on twitter @CitizenCohn

  1. I've always thought the ideal solution was the one in the French health care system: Wave cost-sharing for people with expensive, chronic conditions like cancer and diabetes. The Commonwealth Fund has details.