From This Week with George Stephanopoulos, a conversation with Christina Romer, chair of the White House Council of Economic Advisers about the propos
January 10, 2010

From This Week with George Stephanopoulos, a conversation with Christina Romer, chair of the White House Council of Economic Advisers about the proposed excise tax on "Cadillac plans" to fund the healthcare bill.

As someone who got into the nuts and bolts of union health care plans when I was a reporter, I can tell you there's almost always some lard in there. (I remember one contract that covered a week-long hospital stay for normal childbirth.) The insurance broker is usually politically connected, and the premiums are inflated so the broker can kick back a percentage to the politicians. So theoretically, this tax will put some useful pressure on inflated plans - but create some very unhappy politicians:

STEPHANOPOULOS: Senator Harry Reid, though, the Democratic leader in the Senate said that has to wait until health care is done and the negotiations between the House and Senate have begun this week. The president weighed in with the leaders on behalf of this so-called Cadillac tax, the excise tax on high-priced health insurance plan. That is facing some real resistance in the House. Here's Congressman Joe Sestak.


SESTAK: They're not just pulling the Cadillac. They're pulling the Chevrolets. By 2019, because they index it to a wrong inflation rate, we're going to have one-third of all the workers in employer-based plans paying a middle-class tax. No, this has to change.


STEPHANOPOULOS: He and labor leaders like Gerry McEntee say this is going to be a middle-class tax increase that could hit up to 40 percent of union workers.

ROMER: All right, so the -- the important thing the president has said that he thinks that this excise tax on Cadillac plans is important. He's been convinced by experts across the ideological spectrum that say this is one of those things that genuinely slows the growth rate of costs, and anybody that's worried about the budget deficit knows that we've got to -- to do that.

You know, what the president has said is, you know, he's always open to -- you know, there are design issues here. He's going to be continuing to -- to work with the Congress to say, are there ways to -- to make it work better? But we want to maintain that -- that crucial focus on cost containment.

STEPHANOPOULOS: Even if it's a middle-class tax increase?

ROMER: You know, I think that the numbers that you were hearing, you know, that the levels where this is being set -- I think the current number is something like $23,000 for a plan, a family plan -- that's a very high level and -- and exempts an awful lot...


STEPHANOPOULOS: Well, except union leaders say it's not. They say that at $23,000, it affects 1 in 4 union members. If you raise the threshold to $27,000, it'll be 1 in 14. Are you willing to raise that level?

ROMER: No, you -- you absolutely -- I think you've got to be very careful on the numbers. They're actually, as it's being developed -- they're being, you know, changes made to make sure that, if you've got just older workers and that's why your costs are higher, or things like that, if you're a first-responder, so we've been very receptive to -- to, you know, arguments like that, and, also, the -- you know, sort of the -- the level at which you set.

I think the important thing is the -- you know, the incentives that it provides to genuinely slow the growth rate of costs (ph). If this thing works just right, nobody hits it, right, because -- precisely because it slows the growth rate of costs.

ABC News

(ABC News)

STEPHANOPOULOS: Well, that's because insurance plans might be dropped, as well. But, still, even with this in there, the Senate bill, your own chief actuary of Medicare and Medicaid says that this is going to increase health care costs by $222 billion over the next 10 years.

ROMER: All right, so you need to be very careful. There are lots of estimates out there. I think, you know, the Congressional Budget Office...

STEPHANOPOULOS: But that's your own actuary.

ROMER: The -- the actuary is independent, right, and the Congressional Budget Office is nonpartisan, highly respected organization, as well. They have said that the Senate bill as it came out would genuinely reduce the deficit over the 10-year window and, even more important, said that it would slow the growth rate of costs so that those -- that deficit reduction was going to be growing over time.

So I do think you need to -- to -- to look at the range of estimates. And we, certainly, have looked very hard at the CBO estimates and -- and think they're very reasonable.

Can you help us out?

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