Some Question Healthcare Affordability Under Baucus Plan

President Obama has said repeatedly that "if you like your healthcare coverage, you can keep it." Republicans have scoffed at that claim. But many liberal Democrats are starting to doubt it, too, even as healthcare reform appears to be gaining momentum.

Their concern involves a key provision in the Senate Finance Committee healthcare bill, which the committee approved earlier this month. The provision is a new tax that insurers will have to pay on their most expensive healthcare plans. These are the "Cadillac" plans, so named because they presumably offer luxurious benefits that only the wealthy can afford.

To deflect the tax, experts say, insurance companies could hike their rates, hurting people who aren't super-rich, including middle-class Americans who have more generous health plans, such as union workers, older working Americans, and people with dangerous jobs. Even though the tax is on insurers, economists say insurance companies will almost certainly pass it on to businesses, which in turn will try to avoid it by pressuring their employees to choose cheaper plans.

In fact, experts say, that's partly the point—to nudge people to buy less expensive plans with fewer benefits. Presumably, that would help bring down healthcare costs because the more coverage people have, the more unnecessary treatments they receive. "There is good reason to believe that would happen," says Gary Claxton, a vice president at the nonprofit Kaiser Family Foundation. "Whether or not that's a good thing depends on one's point of view."

Coverage for tens of millions of people would most likely be affected. The proposed tax would initially apply to insurance plans that cost more than $8,000 for individuals or $21,000 for families. In 2013, the first year it would go into effect, about 14 percent of individual plans and 20 percent of family plans would be above that mark. By 2019, roughly a third of all healthcare plans would fall into that category. (That's because healthcare premiums are expected to rise at a much steeper rate than the cutoffs.)

The sheer number of plans above the threshold means such a tax could raise a lot of money. Say, for example, a family's health insurance plan, plus dental and vision care, totals $23,000. The Baucus bill would impose a 40 percent tax on the amount that exceeds $21,000. The insurer would have to pay $800.

But the bigger impact of such a tax would most likely be behavioral, as the cost trickles down from insurers to consumers. As the Joint Committee on Taxation wrote in a letter last week to Congress, "Generally we expect the insurer to pass along the cost . . . to consumers by increasing the price of health coverage."

The 40 percent tax is pretty stiff, by design. Stiff enough, says Henry Aaron, a Brookings Institution senior fellow and noted health policy expert, "that companies will be strongly discouraged from offering plans costing more" than the cutoffs. If employers offer the more expensive plans, they'll be socked with higher costs from the insurance companies. So employers will either have to ask workers to pay more for their plans or whittle down their benefits. "Businesses and workers are going to get together and say, 'We have to do something to knock the cost,' " says Aaron. They could drop benefits, limit access to medical services, force people to pay higher deductibles, or, in a dire case, drop coverage altogether.

All this talk is prompting a huge blowback from organized labor and liberal Democrats. "We really do think it's the wrong direction to go," says Louise Novotny, research director at the Communications Workers of America. "Our workers understand that a tax on their health plan means less benefits for them or more costs. It's going to come right to them. There is no confusion."

Unions strongly backed President Obama in the 2008 election and tend to be huge donors to Democrats, so they have some clout in the debate. Traditionally, unions have fought hard for generous healthcare packages, so they're loath to see those hard-won benefits cut.

According to Novotny, about 300,000 CWA workers and their families have healthcare plans that would get pinged by the Baucus tax. "We know full well that the next time we come to the bargaining table, companies would say, 'We are going to have to do something about this.' It's going to be even tougher than it's been already."