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White House Pushes 'Cadillac Tax' Despite Union Protests

By Jane Norman, CQ HealthBeat Associate Editor

President Obama's chief economic adviser praised at length on Monday the "Cadillac tax" included in the Senate Finance Committee's version of the health care overhaul as an effective way to raise revenue and slow health care spending.

But she also said it has to be written so that it doesn't hit too hard at states with high health insurance costs, people in risky professions such as firefighting that could produce big medical bills or older Americans with expensive health problems.

"A part of designing this correctly is taking that into account," said Christina D. Romer, chairwoman of the Council of Economic Advisers, in response to a question following a speech at the left-leaning Center for American Progress. "And those are all things that we hear Congress talking about and certainly is something that, you know, makes sense to think about."

Overall, Romer said, it is "fiscally irresponsible" not to change the U.S. health care system and pursue ideas such as the excise tax and more. "We are on a collision course with reality," she said.

The White House official said in her prepared remarks that the excise tax on high-cost insurance policies proposed by Democratic Sen. John Kerry of Massachusetts "will encourage both employers and employees to be more watchful health care consumers" and discourage insurance companies from offering high-priced plans that will eat up workers' wages.

"A policy such as this is probably the No. 1 item that health economists across the ideological spectrum believe is likely to stem the explosion of health care costs," Romer said. The proposal would tax insurers and target plans for family coverage that run $21,000 or more. It would raise some $201.4 billion over a decade for the health care overhaul, according to the Joint Committee on Taxation.

The proposal draws strong objections from labor unions that say the 40 percent tax will be passed on to their members, who have forgone wage increases to beef up their health benefits. Many House Democrats have signaled their unhappiness with the idea as well.

The AFL-CIO says its members are making calls and sending letters to members of Congress to protest the tax, though AFL-CIO President Richard Trumka indicated in a conference call with reporters Monday that members might accept a tax on health care plans that are luxuries rather than necessities.

Another hot topic in the overhaul is a government-run health insurance proposal, a version of which Senate Majority Leader Harry Reid, D-Nev., said would be included in the Senate's health care overhaul bill. This "public option" will include an "opt out" provision so that states can choose not to join.

Romer said the public option would be a "credible entrant in concentrated markets and would serve as a competitive, alternative choice, constraining the ability of insurers to raise premiums and thus containing the growth rate of costs." She said it, too, would contribute in slowing the growth rate of health care costs.

Romer said she has been "quite persuaded" that the public option can contain costs and cited California counties that contract with HMOs to provide Medicaid. In some counties there are two private plans, and in some counties there is a private plan and a public plan.

"And the really interesting thing is that cost growth in the counties with a public and a private is indeed slower than in counties with two privately run plans," she said. "It's a small sample . . . but that's one of the things that is giving me a sense that it could be something that could genuinely slow the growth rate of costs."

Romer said that health care costs, both public and private, are rising much faster than the gross domestic product. "It is simply not a problem that can be kicked down the road indefinitely. Obviously we can't go back eight years and make more responsible choices," said Romer, in a swipe at the George W. Bush administration.

Romer also took aim at an initiative expanded during that administration, Medicare Advantage, which is targeted for reductions in the health care overhaul. She cited statistics from the Medicare Payment Advisory Commission that the managed care program spends 14 percent more per beneficiary than traditional fee-for-service Medicare. She said ongoing research by White House and Treasury economists suggests that Medicare beneficiaries who enroll in Medicare Advantage tend to be healthier prior to their enrollment.

"As a result one might expect the government to spend less on their health care, not 14 percent more," Romer said.

Other recent research by the economists "suggests that the total fiscal impact of health care reform may be even larger than our baseline estimates suggest," she added.

Romer said the expansion of access to insurance is important for state and local governments that now pay for much of the care for the uninsured. There are 16 states now spending $3.6 billion a year in uncompensated care, as well as another $600 million on higher insurance premiums for public employees to offset the costs of uncompensated care shifted onto those policies, Romer said.

That money would at least partly be saved under the overhaul, she said. Expanding projections to all 50 states and the District of Columbia "implies savings of roughly $116 billion to state and local governments between 2014 and 2019," she said. Even after taking out the estimated $33 billion that states would have to pay out in increased Medicaid costs under the Senate bill, there could be a net savings to state and local governments of $83 billion over six years, Romer said.

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