Robert Pozen discusses the Employee Health Benefits Excise Tax (aka The Cadillac Tax)

the Employee Health Benefits Excise Tax
(aka The Cadillac Tax)
with Robert Pozen
Wednesday, June 24
Noon to 1:00
Hoover Institution

1399 New York Ave., NW, #500
Washington, D.C. 20005

Robert Pozen is a nonresident senior fellow in Economic Studies at the Brookings Institution.  Since 2004, he has served as the chairman of MFS Investment Management, which manages over $180 billion in assets for over five million investors worldwide. Prior to this position, he was the John Olin Visiting Professor at Harvard Law School in 2002 and 2003, where he taught interdisciplinary courses on corporate governance and financial institutions. He currently serves as a senior lecturer at the Harvard Business School.

Rising Employer Healthcare Costs Increase Income Inequality

The stated objective of the Patient Protection and Affordable Care Act was to reduce the rising costs of healthcare, and to provide health service coverage for nearly every American. Last Thursday, the primary mechanism- the individual health insurance mandate- withstood constitutional scrutiny in the Supreme Court; albeit as a tax, not an exercise of the interstate commerce power. The distinction doesn’t matter, the legal definition of the provision matters nil to the policy outcomes it produces. Many more people will be insured under the Act. However, it is yet to be seen whether the Act will adequately address the issue of the perpetual increases in healthcare costs that outpace the economy, wages, and savings.

The rising cost of healthcare effects aspects of life on many different fronts, and a recent research paper by Gary Burtless and Sveta Milusheva from the Center for Retirement Research at Boston College examines some fascinating effects on money wages, social security, and income inequality.

The paper finds that much of the income gains over the last several decades for middle and low income earners have come primarily from increases in payments for health care coverage, while money wages for top earners- particularly for those earning above the Social Security taxable-wage ceiling- have increased more quickly. Thus, healthcare costs contribute to income inequality on both ends of the wage scale- absorbing compensation increases at the bottom, while top earners take home wages above the reach of FICA.