William F. Buckley, Jr. must be smiling. In his elegant defense of conservatism, Buckley confessed that he would rather “live in a society governed by the first two thousand names in the Boston telephone directory than in a society governed by the two thousand faculty members of Harvard University.”
On Tuesday, the New York Times reported that Harvard faculty voted overwhelmingly to reject changes to their health insurance required by Obamacare. “For years, Harvard’s experts on health economics and policy have advised presidents and Congress on how to provide health benefits to the nation at a reasonable cost,” the Times reports. “But those remedies will now be applied to the Harvard faculty, and the professors are in an uproar.”
Turns out it wasn’t just average Americans who were bamboozled – a trick Obamacare architect Jon Gruber infamously chalked up to “the stupidity of the American voter.” But what could the Ivory Tower professors have actually expected? When President Obama promised, “If you like your plan, you can keep it,” did Harvard professors examine Obamacare’s incentive structure? Or did they just take the president at his word? Because a glance at Harvard’s prior plan coupled with Obamacare’s new penalties, mandates, and taxes reveals that theirs’ was a Cadillac plan that would be taxed out of existence.
The backlash is all the more remarkable because Harvard is merely applying common features of health care plans to their elite faculty. For example, employees must now pay deductibles of $250 per individual and $750 per family. The deductible for a doctor’s office visit is $20. They must also pay co-insurance of 10 percent of the cost for hospitalization, surgery, or tests up to $1,500 per individual and $4,500 per family.
Besides increasing co-pays and co-insurance, employers and insurers have also been narrowing the networks of providers from which Americans can seek treatment. Harvard, however, had to reject this choice because the best and most expensive providers in the Boston area are affiliated with Harvard Medical School. Thus, to narrow its network, Harvard would have had to exclude its own providers. It would have been entertaining to hear Harvard explain to the most highly-educated workforce in the world why they couldn’t receive medical treatment from their co-workers and affiliates.
There’s nothing inherently wrong with an employer deciding on its own to shift some health care costs to employees – especially if the shift is accompanied by salary increases in place of the health insurance benefits. It’s the employer’s money. If an employer chooses to provide fewer benefits, it risks losing good employees. But that’s not Obamacare. This isn’t a choice. Under Obamacare, the shift is not voluntary but is instead forced upon employers through mandates, penalties, and Cadillac-plan taxes.
In Obamacare, the excise tax on Cadillac plans is 40 percent of the value of a plan above the Cadillac threshold – a rate that exceeds the top income tax bracket. The Cadillac-tax is set at a high level so that no sensible employer would ever sponsor a plan that triggers its penalties. Doing so would reduce both the company and the employee’s bottom line because each would pay a lower tax rate if the money spent on health insurance were simply provided as income.
The Cadillac tax is aimed at ameliorating the effect caused by a tax code that favors additional employer sponsored health insurance coverage over ordinary income or individual insurance coverage. Since World War II, if your employer buys your health insurance, it’s purchased with pre-tax dollars. But, if you buy it on your own? Sorry, taxes have to be taken out first.
It doesn’t make much sense to remove the ultimate consumer of a product from the most important decisions to be made about its purchase. Yet that’s exactly what the American tax code has incentivized since the 1940s. The simplest way to attack tax code discrimination against the individual purchase of health insurance would be to give individuals the same benefits that companies enjoy – allow them to purchase individual health insurance with pre-tax dollars. Of course, that’s not the Obamacare solution. Instead of offering a carrot, Obamacare brandishes a stick.
It took five years for the learned professors at Harvard to realize they would be on the business end of Obamacare’s stick. Now that the switch has hit, they aren’t mincing words. Prof. Richard Thomas told the Times the changes are “deplorable” and “deeply regressive.” Prof. Mary Lewis says the increased costs are just like a pay cut “timed to come at precisely the moment when you are sick, stressed, or facing the challenges of being a new parent.” Perhaps it’s time for a Buckley Corollary – maybe the Harvard faculty would be okay, so long as they know they have to live by the same rules they’d impose on everyone else.