… then the health reform effort is pretty much a complete loss.

Carolyn Lochheed of the San Francisco Chronicle writes:

Pelosi scored today big time after a marathon negotiating session at the White House, all but gutting the Cadillac tax on high-cost health insurance plans that the White House wanted.
The move also guts the last significant force for cost-containment in health care legislation. Pelosi was adamant about killing the tax after giving up the public option. She thinks it violates Obama’s pledge not to raise taxes on the middle class.
Union leaders are celebrating and giving Pelosi high praise. The tax remains, but excludes dental and vision benefits after 2015, excludes union-bargained plans for 8 years, and raises the threshold at which plans would be taxed. A final push is to exclude taxing anyone who makes under $200,000, a big Pelosi goal. Republicans claim the way the tax is now structured, it will hit only non-union employees. Union leaders say the changes cut $60 billion from the $150 billion the tax would have raised.

Two observations:

(1) She thinks it violates Obama’s pledge not to raise taxes on the middle class.

Pelosi is clearly a pretty shrewd woman. The difficulty, however, is that the president’s efforts to expand the welfare state can’t be funded only by wealthy taxpayers, if only because this is a recipe for a very volatile tax base. This contradiction is difficult if not impossible to resolve.

There is one method that might be crazy enough to work. In 1991, Action Comics Annual #3 featured a story from the year 2001. In it, the Supreme Court found that Superman was born in Kansas and thus eligible to be elected president. Naturally, he won in a landslide, and he proceed to close the budget deficit and the trade deficit by scoring the world’s oceans for pirate treasure and using the proceeds to launch a clean-tech revolution. One assumes that he could also use the proceeds to fund generous subsidies for the purchase of private insurance. (I’m being silly. Really, I just wanted to mention Superman.)

Failing that, a Cadillac tax with teeth could go along way towards encouraging efficiencies and raising a considerable amount of revenue tied to the increase in the cost of premiums rather than growth of the overall economy. We’re evidently not going to get one.

(2) Republicans claim the way the tax is now structured, it will hit only non-union employees.

The “optics” of this move are problematic.

P.S. Klein takes a very different view from Lochheed, and he has numbers.

The major elements of the excise tax are, first, the threshold at which plans begin getting taxed, and second, how quickly that threshold grows. In the Senate bill, the tax begins on family plans costing $23,000 a year, and that sum grows at the rate of inflation in the Consumer Price Index plus one percentage point (so if inflation that year was 3.3 percent, the threshold would grow by 4.3 percent). In the excise tax deal announced today, the threshold becomes $24,000, and the growth rate is exactly the same. The basics of the tax are virtually unchanged. The other elements of the deal are that vision and dental coverage aren’t included in the taxable cost of the plan; there are adjustments for the age and gender of the pool (so if your insurance is expensive because everyone in your group is 52, there’s an adjustment for that); and it doesn’t hit union plans until 2018, which gives them time to renegotiate their contracts — – presumably rebalancing their compensation away from expensive insurance plans and towards higher wages, which is exactly what the tax is supposed to.

Looks like I may have been too pessimistic. Now if we could only fix the administrative structure of the subsidies, the individual mandate, the Nebraska deal that, if universalized, could actually make the federal-state buck-passing problem much, much worse (we’re still allowing the states to set eligibility requirements while the federal government foots the bill), we’d be in business.