Obama Economic Advisor Touts ‘Cadillac Tax’ as No. 1 Cost Saver

By Gorman Gorman

Oct 26, 2009 1:52pm

ABC News' Teddy Davis reports: President Obama's chief economic forecaster went to bat on Monday for a tax on high-priced insurance plans, the so-called "Cadillac tax," calling it "probably the number one item that health economists across the ideological spectrum believe is likely to stem the explosion of health-care costs." "The Senate Finance Committee bill includes a tax on high-priced insurance plans, suggested by Senator Kerry. A policy along these lines, designed carefully, will encourage both employers and employees to be more watchful health care consumers," said Christina Romer, the chair of the Council of Economic Advisors, in a noontime speech to the liberal Center for American Progress in Washington, D.C.  "It will discourage insurance companies from offering high-priced plans that would otherwise eat up larger and larger shares of workers' wages," she continued. "A policy such as this is probably the number one item that health economists across the ideological spectrum believe is likely to stem the explosion of health care costs."Romer's full-throated endorsement of the "Cadillac tax" keeps the Obama administration at odds on this issue with some of its closest allies. Organized labor has made killing the "Cadillac tax" a top priority and more than half of House Democrats have signed a letter to Speaker Nancy Pelosi urging her not to include a "Cadillac tax" in health-care legislation.The union-funded Health Care for America Now group recently launched a television ad attacking the "Cadillac tax" as the wrong way to pay for health-care reform.Opponents of the "Cadillac tax" argue that it would hit the benefit packages of middle-class union members. They also worry that its impact across the country would be uneven, hitting firms with older workers harder than those with younger workers. Another concern is that the "Cadillac tax" contained in the Senate Finance Committee's legislation does not take regional differences in health-care costs into account on a long-term basis. 

During the question-and-answer period which followed her prepared remarks, Romer sidestepped questions from The Washington Post and ABC News about what the cost-control impact would be if Congress were to drop the "Cadillac tax."

On the question of how the "Cadillac tax" should be "designed carefully," Romer told ABC News that a handful of ideas were under consideration by Congress including: (1) making special provisions for high-risk occupations such as firefighters; (2) taking regional differences in health-care costs into account "for a period of time"; and (3) making special provisions for firms with older, more costly workers.

Among the multiple ideas touted as cost savers during her speech, Romer touted the capacity of a public insurance option.

She was less sure, however, about the impact that a public option with a trigger would have, citing a lack of plentiful data on the subject.

On the topic of uncompensated care, Romer seemed to acknowledge during the question-and-answer period that there would be a cost associated with the estimated 12 million illegal immigrants remaining uninsured under health-care reform efforts being pursued by President Obama and Democrats on Capitol Hill.

"The more uninsured care remains, the more state and local governments will be spending on it," said Romer.

The overarching message of Romer's address was that health-care reform is "the most significant act" the United States "could take to tackle the deficit."

Republicans have been using the country's $1.4 trillion deficit in fiscal year 2009 to argue that the U.S. cannot afford the cost of President Obama's effort to overhaul the nation's health-care system. The president told Congress that the final health-care bill must be paid for and keep costs below $900 billion over ten years.

"Done correctly," said Romer, "health care reform can genuinely slow the growth rate of health care costs and thus puts us on a path to greatly reduced budget deficits in the long run."

–Teddy Davis

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