One of Few Things Growing as Fast as Health Care Costs Is Income of Richest 1%

Picture 165The Economic Policy Institute provides a much needed counter-weight to those cheerleading the use of Cadillac-as-Chevy taxes to pay for the Senate health care bill. It shows, generally, that the millionaire’s tax used to fund the House bill is far more progressive than the Cadillac-as-Chevy tax used to fund the Senate bill, which ends up taxing those at $20-30,000 more than it taxes those at $500,000 to 1 million a year.

In fact, it makes an even more striking point. Given the way the economy has worked in the last several decades, one of the few ways to fund health care in such a way that will keep up with rising health care costs is to tax the rich.

While a funding source that grows with health care costs is a desirable goal, it should be noted that for the last three decades one of the only things in the American economy that actually has grown as fast as overall health costs is the incomes of the richest 1% of households.

The paper points out two central reasons why the excise tax won’t be as progressive as its champions claim.

Most importantly, it shows that the cost of a plan does not reflect exclusively on how generous the benefits of that plan are. On the contrary, plan cost has more to do with group size and overall health than it does with the benefits granted.

The assumption that high-cost plans are high-value plans is flawed. Many health plans are expensive because the population covered is older or sicker than average, but they still do not provide more comprehensive coverage. Moreover, this is a much larger problem than is often recognized. Gould and Minicozzi (2009) have shown that some of the most powerful predictors of a plan’s high cost are the size of the firm and the age of its workers. This is surely not a coincidence—small firms and firms with older workforces tend to have less bargaining power with insurance companies and this leads to higher prices for insurance coverage that may be no more comprehensive than lower-priced coverage for larger or younger firms. It should be noted that the Senate bill recognizes this reality and specifically exempts some health plans (those covering high-risk professions, for example) from the excise tax or raises the threshold of the tax explicitly on the grounds that high-cost is not synonymous with high-value.

Furthermore, Gabel et al. (2010) find that only 3.7% of the variation in premiums for family plans is determined by a plan’s actuarial value, that is, the share of average medical expenditures paid for by insurance (instead of by outof-pocket spending). It is also worth noting that the Joint Committee on Taxation’s (JCT) scoring of the excise tax indicates that plans with fewer enrollees are more likely to be affected by the excise tax. Given that previous research has shown that smaller firms pay premiums 18% higher than large firms pay for equivalent health coverage, it seems clear that this excise tax will be affecting many workers who have only high-cost—not high-value—health coverage (see Gabel et al. (2006)). [my emphasis]

So workers at smaller firms and those with sick co-workers will be asked to pay for the health care reform, not primarily a bunch of Goldman execs who have luxurious benefits.

In addition, the EPI paper gives a host of reasons why it is actually doesn’t save money to have people forgo care to save money. Basically, for a whole host of expensive, chronic diseases, the overall cost of treatment will be lowest if patients actually use health care to manage their condition.

If the excise tax pressures people to purchase health plans with increased cost-sharing (e.g., higher copayments), consumers may very well respond to this effective price increase by haphazardly cutting back on medical spending. However, many of the interventions that are avoided may turn out to be health-improving and/or cost-effective. This problem is especially true for vulnerable populations. Research has demonstrated that low-income and chronically ill populations are generally harmed by higher cost-sharing and may actually incur higher overall costs in response to the introduction of this cost-sharing, as they cut back too much on cost-effective managing of chronic conditions.

Research has found that the optimal cost-sharing rate for many chronic conditions and large classes of prescription drugs is very low or even zero. This same research shows that increased cost sharing in certain areas (e.g., prescription drugs or primary care) can lead to higher overall costs due to increased utilization in other areas (e.g., hospitalization).

That is, if we force chronically ill people to pay more of their treatment costs out of their own pocket, society will spend more on their treatment overall.

I just have one complaint about the paper. It treats seriously the claim that if a company saves money on health care, it will pass on those savings–in the form of higher wages–to employees. Such claims are based on studies that show that when health care cost increases, employers respond by lowering wages. Aside from the fact that no one is envisioning employers paying less than they currently do for health care (but instead, of adjusting plans to keep costs about the same), this argument relies on a logical flaw–the assumption that the reverse holds true too, that employers will pass on savings to employees. Maybe there’s a study that proves that this is the case, but thus far the only thing studies show is that by raising the cost of health care–which the excise tax will do–it will lead to job losses.

But the EPI study makes a really critical point. The argument for funding health care reform through a Cadillac-as-Chevy tax is an attempt to avoid the so-called class warfare that singles out the really rich and asks them to contribute back to society. But when you consider the fact that the salary of the really rich is rising as fast as health care costs, it seems to make more sense to have the rapacious rich pay for the the rapacious costs of health care. 3

29 replies
  1. Gitcheegumee says:

    Speaking of inequities of the Plutonomic class,The Brits have concluded that maintenance workers are more important contributors to society than bankers:

    Cleaners ‘worth more to society’ than bankers — study
    Source: BBC News

    Hospital cleaners are worth more to society than bankers, a study suggests.

    The research, carried out by think tank the New Economics Foundation, says hospital cleaners create £10 of value for every £1 they are paid.

    It claims bankers are a drain on the country because of the damage they caused to the global economy.

    They reportedly destroy £7 of value for every £1 they earn. Meanwhile, senior advertising executives are said to “create stress”. The study says they are responsible for campaigns which create dissatisfaction and misery, and encourage over-consumption.

    Read more:

  2. Leen says:

    EW “Such claims are based on studies that show that when health care cost increases, employers respond by lowering wages.”

    Always figuring out how to take it out of the pockets of the workers.

    EW “The argument for funding health care reform through a Cadillac-as-Chevy tax is an attempt to avoid the so-called class warfare that singles out the really rich and asks them to contribute back to society.”

    Especially since so many of the wealthy accumulate that wealth off the backs of underpaid workers.


    This past Oct I attended the Green America’s aka Coop Americas Green Fest (a dear friend has worked for Co-op America for 20something years) in D.C. at the Washington Convention Center. While Green Fest is a remarkable event (I think there are 5 of them around the country that my friend and team organize) I spent some time going around takling to quite a few of the workers in the building. Almost all African Americans, almost all contract laborers. Five of the women I talked with at length (not) together were all making around $14.oo an hour and paying at least $150.oo a month out for health care. After taxes and health care cost they were bringing home around $400.oo a week. Easy math 1,6oo a month, 18,ooo a year. All five would be heading to second jobs after they left their 4o hour a week job at the Washington Convention center.

    How in the hell can people be expected to ever get ahead on salaries like this. Let alone invest in the gambling syndicate called Wall Street

    • Gitcheegumee says:

      Always figuring out how to take it out of the pockets of the workers..

      And when they are no jobs, what’s in the workers’ pockets to take , then?

  3. earlofhuntingdon says:

    The top 1% are wealthy. The top 0.1% are mind-bogglingly wealthy. They know what it means to pay to play. That’s why they pay their lawyers, lobbyists and accountants to leave loopholes and enact laws and rules that let them avoid paying a fair share for the privilege of being at the top. It’s cheaper than paying that fair share. Most of them, by the way, didn’t “earn” their wealth. They inherited it, like Bush; or built it up using those advantageous rules and wingnut welfare, like Bush; or they were paid exorbitantly for work hundreds or thousands of others could do as well or better, like the MOTU.

    That income, class and social group pays little for its privilege of living and keeping their assets in a safe, law abiding, productive, energetic company country, with the best outsourced military and health care that money can buy. By design: Entrepreneurship 101 says never use your own money when someone else’s will do just as well.

    Those so privileged could Go Galt. They could move to Shanghai, which will displace London as the number two financial center. They could buy a palace on the Thames, along the Balkan coast or in the Caribbean, hoping their shouts about global warming are more than rhetoric. Or, knowing it’s not, they could try Gstaad, and hope the glacier melt doesn’t sweep away their private bank.

    Otherwise, they can pay fractionally more than they do now and do a world of good. They won’t volunteer, so let’s help them by way of legislation. It works for the draft, and the money would be put to good use: helping to keep this a viable, productive, safe community in which to live and in which for them to hide their assets.

    • alan1tx says:

      That income, class and social group pays little for its privilege of living and keeping their assets in a safe, law abiding, productive, energetic company country, with the best outsourced military and health care that money can buy. By design: Entrepreneurship 101 says never use your own money when someone else’s will do just as well.

      Seems like an odd complaint against the rich in arguing for government supported health care for the poor?

      • earlofhuntingdon says:

        Nothing odd at all, unless it’s the unobserved snark in the last sentence. The rich pay very little to live and keep their assets in an exceptionally genial, law abiding, safe, secure, cooperative and predictable society. They helped write the laws and rules that make protecting their assets more important than almost any other societal goal. A reasonable response to their free-riding would be to increase their tax burden in exchange for maintaining the health of the society that protects them.

        BTW, it’s not so much a government-sponsored health care, which you imply is an inherent negative. The public option would be a government owned – that means, taxpayer owned – issuer of quality insurance products. Most Americans participating in it would be paying market rates for the coverage, as well as paying for the shared cost of the issuer via taxes.

        For some Americans, taxpayers generally would subsidize some of their insurance payments, as well as by making insurance available at all via the public issuer (when private insurance would be unavailable, too expensive, or yanked just when it was needed by a profits-obsessed private issuer).

        That’s what societies do when maintaining the health and safety of all of society is deemed as legitimate as protecting the assets of the rich.

  4. readerOfTeaLeaves says:

    Research has demonstrated that low-income and chronically ill populations are generally harmed by higher cost-sharing and may actually incur higher overall costs in response to the introduction of this cost-sharing, as they cut back too much on cost-effective managing of chronic conditions.

    This assumes that ‘health care’ is based on pay-for-service.

    You go to the Dr; you pay.
    You get an Rx; you pay.
    You get a test; you pay.

    Maybe it’s b/c I live in the Pacific Northwest, where both UW Physicians network and Group Health (and further south in Oregon, Kaiser Permanente) place a focus on patient wellness, and the ‘wellness’ model is far more cost effective — AND produces better health care outcomes over time.

    This analysis appears to assume the pay-per-service model.
    In that model, people put off health care b/c they don’t think they can afford it. That’s what happens in a profit-driven system.

    In the ‘wellness model’, the costs and benefits of small, daily habits and activities are far more accurately calculated into the premiums. It looks as if that data has been incorporated into this study.

    But fundamentally, the idea that **anyone** (and yes, I am thinking ‘Hank Paulson’) engages in productive activities that ‘create $200 million worth of value’ in a year is nonsense.

    IIRC, in the 1980s, the key to ‘wealth creation’ was assumed to be capital. Therefore, ‘capital’ was not taxed, on the assumption that it was a critical factor in creating even more wealth.

    So to treat ‘capital’ (gains, investments, yadda) as if it is sacrosanct, and is the key element in creating capital or ‘wealth’ is rather 1880s.

    A lot of that ‘capital’ appears at this point to consist of bogus accounting, bogus paper, and offshore shenanigans. Tax the hell out of it and make it earn a living for a change.

  5. earlofhuntingdon says:

    With rare exceptions, too few to shift the curve, companies do not share cost savings with employees. That’s anathema to today’s dominant business philosophy: it’s not what shareholders “want”, though escalating management pay somehow is what shareholder’s want.

    Health care is a lot like car care. Change the oil and check the brakes – do routine, inexpensive preventive care – or change the engine and pay for an accident. Preventive care works the same way. It can detect unhealthy trends that can be altered so as to avoid health consequences. It can detect life-threatening, chronic or progressive diseases early, leading to early treatment. That avoids expensive treatments that are necessary when a disease has already taken a firm and damaging hold on the body. It can slow the progress of a disease or save lives.

    One reason health insurers work hard to avoid paying for preventive care is that they aren’t insuring health care. They are insuring profits and bonuses. Improving individual health outcomes or lowering patient or societal costs is irrelevant to them if it costs them money today. That simple statement doesn’t seem part of the public health care debate, though it is on these pages.

    If improving outcomes or lowering individual and overall costs are priorities – and I think they should be – we need alternatives, such as the public option – to get there. Thanks, EW and Jane, for helping to make that happen.

  6. earlofhuntingdon says:

    The so-called Cadillac tax is a nasty pun, one that the Villagers who came up with it seem to have aimed at the UAW and other unions.

    They and their non-union co-workers, who enjoy the same benefits negotiated with management by those unions, will pay this tax on full coverage health plans. Top executives who enjoy similar health insurance coverage – virtually all of them nationwide – will not. That includes Congresscritters. That’s because their employers or the companies they own will top up their compensation one way or another to make them whole for the added cost. It won’t hit their pocketbooks.

    The other thing this misnamed tax on full coverage plans is designed to do is to corrupt the meaning of “full coverage”. Lower benefits insurance plans are more profitable, as is renting you an Impala for the price of a Cadillace STS. Lowering the expectation for what constitutes an adequate health plan keeps profits higher. It also lowers federal budget estimates for what the government should pay in any scheme.

    What’s lost in this word game, again, is health care: improved patient outcomes and lower overall and individual costs.

  7. peterboy says:

    yes, the cost of plans IS defined by the risk pool.
    I will pay $325 under COBRA for the insurance in the huge risk pool of my former employer, but once I go off COBRA and go into the guaranteed issue pool of the very same insurance program, the cost will rise more than $400 a month.
    Because I take a pill, I cant get any other insurance.
    So what you have is a good plan that costs $4k a year, will now cost $9k and become a CADILLAC plan.

  8. Bluetoe2 says:

    Well this is the United States were anyone and everyone can be a millionaire if not a billionaire. That’s the message anyway.

    • earlofhuntingdon says:

      The “anyone can do it” theme is as false now as it ever was. The odd successful entrepreneur, and there have been tens of thousands, beat the odds as much as any kid from Harlem who makes it to the NBA.

      The reality is that wealth is largely static, but growing in concentration, thanks to GOP tax policies from Reagan to Bush II. In California, for example, 1% of households take home 25% of pay, which includes earned and unearned (investments).

    • Leen says:

      Jessie Jackson has come to our community (Athens Ohio) in the foothills of Appalachia many times over a 40 year period. Have had the pleasure of having a few face to face conversations with him.

      Anyway during one of his visits about five or so years ago he spoke at Hocking College. A very good tech school in Nelsonville Ohio. Actually has a sizeable international student population mixed in with rural mostly white Appalachian kids.

      In the small auditorium I sat in the back because I wanted to watch the students response to what Jessie was saying. At one point he really went out on a limb in that community and said “now the poor and underprivleged in Appalachia are not so different than the poor and underprivileged in rural and urban African American communities..the struggles are very similar.” The “differnece” he went onto say “is that many of you actually believe that you are going to be one of those millionaires/billionaires one of the fat cats” and the likelihood of that happenning “is slim to none”

      Whoa. Those kids were not pleased to hear the truth from an African American man let alone a person as controversial as Jessie Jackson. The crowd stood up for him afterwards but most of the white 20 something males stayed seated. They were visibly pissed off.

      Interesting to observe people’s reaction to Jessie speaking the truth.

  9. fuckno says:

    Looking at the graph is all you need to know.

    Americans are doing fine, we are becoming wealthier and health cost increases are being kept in line with the pace of wealth increase.

    So, STFU!

  10. robspierre says:

    “an attempt to avoid the so-called class warfare that singles out the really rich and asks them to contribute back to society.”

    That’s putting it rather mildly.

    The super rich are rich and growing richer because of thirty years of broken social and political policies. Productivity has climbed steadily in this country, but politicians and their wealthy friends have conspired to keep wages and benefits slow, lining their own pockets with the profits. They lowered taxes on the richest and upped them on everyone else. They turned a blind eye to Swiss and Caribbean bank ccounts while hounding people who couldn’t pay back a student loan. They broke unions, outsourced, and off-shored work. They systematically looted pension plans before replacing them with 401K plans that forced us to hand our savings back to them, where they could be systematically skimmed by flash trading and market-timing schemes. Now they are finishing up on the last benefit, health insurance, and making it mandatory to boot.

    “So-called class war”? There is nothing so-called about it. The classes are the rich and everyone else. Everyone else–we–have been losing, and now we’ve been betrayed by our own high command.

    So now we need to replace our command with folks who will focus on really hurting the enemy for a change, on clawing back every concession with interest. The rich have had their tax breaks, their bailouts, and all the other benefits of a government that bent over backwards for them while screwing everyone else. Now it is time to make them make restitution–and then some.

    • KrisAinCA says:

      I thought we were relplacing our high command with someone who would hurt the enemy for a change. That’s why I voted for Obama. The betrayal here is really disheartening.

  11. VADEM says:

    Looks like we won’t have to worry about hcr anyway

    Politico says the White House is telling Reid to cave in to Lieberman’s demands and strip out the Medicare buy in and that there’s an emergency caucus meeting today.

    That’s if Politico can be trusted at all.

    • Leen says:

      When will they pull the plug on “Traitor Joe”

      Janes efforts up at cnn
      December 14, 2009
      Hadassah Lieberman under attack over industry ties
      Posted: December 14th, 2009 01:29 PM ET

      Hadassah Lieberman is under attack over industry ties.

      Washington (CNN) – Sen. Joe Lieberman – whose opposition to a public insurance option has drawn outrage from liberal groups for months – is used to finding himself in progressive crosshairs.

      Now it’s his wife’s turn.
      [… more at link]

      “We are asking Ellen DeGeneres, Christie Brinkley and other high-profile celebrities who are associated with Komen to demand that no more money raised for cancer treatment be given to Hadassah Lieberman or any other ex-Pharma/Insurance strategists,” said Jane Hamsher, founder of the Firedoglake blog

      [Modnote: To respect the author’s copyright, please only paste a portion here and link back to the original, thank you.]

    • PJEvans says:

      Desire to be a one-term administration?
      The belief that we’ll accept whatever we’re given?

      What did they promise us?
      What did they give us?

  12. Leen says:


    Insurance Stocks Soar With Joe Lieberman’s Statements
    By: Jon Walker Monday December 14, 2009 10:26 am

    The Wall Street Journal is reporting that health insurance stocks are up dramatically today after Joe Lieberman’s threat to filibuster health care reform. Lieberman has a new-found strong opposition to the Medicare buy-in proposal–a massive flip-flop from his earlier support.

    Wells Fargo Securities analyst Matthew Perry said Lieberman’s comments are good news for managed-care stocks as anything that delays health-care reform is a positive for the group.

    “Every time the reform seems less likely that it will happen, the entire group trades higher,” said Perry, who has advised his clients to buy shares of Wellcare Health Plans Inc. (WCG), recently up 1.3% to $36.74, and Humana Inc. (HUM), up 1% to $42.26.

    Among the other recent gainers in the sector, Aetna rose 2.7% to $32.65, Cigna Corp. (CI) added 2.3% to $36.41 and Well Point Inc. (WLP) gained 2.7% to $58.07. Meanwhile, UnitedHealth Group Inc. (UNH) added 1.6% to $30.99.

    Joe Lieberman is the rain man for big health insurance companies. Every time he tries to bring down real reform with his nonsensical attacks on the public option or the Medicare buy-in, the stocks of health insurance corporations jump.

    Senate Democrats need to understand their support for Joe Lieberman is support for the health insurance industries. Every time they give in to his ridiculous demands, they are giving in to the demands of the health insurance lobbyists. Joe Lieberman and his support of the health insurance companies will be a fifty ton weight that will drown the Democratic party. It is well past time to cut him loose before the party is ruined by its endless appeasement of a man who is fighting against the goals of the party.

    [modnote: How to Link]

  13. Mason says:

    Obama and Rahm are neoconservative corporatists who have set out to destroy what’s left of the middle class and labor unions by applying the Shock Doctrine. They want a labor class of serfs willing to work without benefits for table scraps. They plan to abolish Social Security, Medicare, Medicaid, unemployment, worker’s compensation, public education, and any remaining vestige of the safety net. They do not want to reform health care; they want to abolish it. They dream of creating a world empire by constant warfare that eventually controls access to all the world’s natural resources. Free market everywhere all the time, baby!

    They regard liberals and progressives to be their real enemies and that is absolutely true, although some are slower than others to realize what’s really happening.

    They intend to blame liberals and progressives for the end product, whether a bill passes or not. And they will attack them next fall in the lead-up to the 2010 midterm elections.

    Liberals and progressives need to seize momentum now and place the blame where it belongs. A good start would be to kill this terrible bill.

    If only William Jennings Bryan were alive today to start the counterrevolution with an electrifying speech awakening the dead from their slumber like his “Thou Shalt Not Crucify Man-kind Upon A Cross of Gold.”

    So let it be written; so let it be done.

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