CQ TODAY ONLINE NEWS
June 10, 2009 – 12:13 a.m.
One Tough Sell: Paying for Health Care Overhaul
By Adriel Bettelheim, CQ Staff
Last year, candidate Barack Obama zeroed in on a feature of John McCain ’s health care plan that would have taxed workers’ benefits, branding it history’s largest middle-class tax increase and saying it was too radical a proposition to seriously consider.
Eight months later, President Obama appears ready to roll the same type of tax hike into his ambitious plan to overhaul the U.S. health system — if enough Democrats in Congress are willing to go along.
In doing so, he risks triggering a huge political battle with labor unions concerned about losing their bargaining clout, as well as rank-and-file lawmakers on both sides of aisle, who are wary of antagonizing economically stressed middle-class voters.
Obama knew all along his powers of persuasion would be tested, because any overhaul of the health care system invariably comes down to finding enough money to pay for major changes. That’s why Congresses and administrations since Lyndon B. Johnson’s have failed to significantly retool the medical marketplace.
Obama is trying to break the mold, wagering that Americans will embrace his vision of expanding coverage to all Americans under a health system reorganized under government control, with insurance coverage requirements that are enforced through the tax system.
The problem is that Obama has only two options to cover a price tag that could run to $1.3 trillion over 10 years: raising taxes or squeezing more efficiencies out of the health delivery system.
The consensus is no one option will cover the cost. So Obama is mulling a combination of steps, including limiting an exclusion in tax law that allows workers to receive unlimited, untaxed compensation in the form of health benefits.
“Health reform is going to be hard to do if you don’t go after that money,” said Len Nichols, director of the health policy program at the New America Foundation, a nonpartisan think tank, and a senior adviser in the Clinton administration during its failed health overhaul efforts in the early 1990s.
“The president has exhibited a lot of flexibility on limiting tax-free treatment of benefits, given where he was on this during the campaign. He’s allowed the door to stay open.”
Facing the Pressure
Administration officials like Budget Director Peter R. Orszag have insisted that the health care overhaul not increase the deficit, even over the next five to 10 years. That puts more pressure on administration officials to identify ways to pay for the plan and extract savings from Medicare and Medicaid, the giant government-administered health programs.
Obama already has proposed limiting itemized tax deductions for the wealthiest Americans to help pay for the health plan. But that is likely to only cover a fraction of the cost, according to health care economists.
Taxing workers’ benefits could raise more than $418 billion in additonal revenues, according to an early estimate from the Joint Committee on Taxation and get the administration that much closer to its goal.
But such a move would be a tough sell, because of the way the extra tax could weigh on working families’ finances and raise public awareness about a valuable but little-understood perk in the tax code.
“You’re stirring up a tax increase, that’s a problem right there,” said Joseph Antos, a health care scholar at the conservative American Enterprise Institute. “But you’re also waking up the middle class and higher-income people to the fact that they’re getting this break. Some might not be that magnanimous about higher taxes funding a benefit for lower-income people.”
Unions, an important Democratic constituency, also are upset. A coalition of 31 labor groups wrote senators on Monday, warning that changing the exclusion would place an undue burden on union members, by forcing them to pay tax on part of their health benefits.
The unions believe employer-provided health insurance will become less attractive if it is partially taxed. According to their thinking, removing the exemption will give employers more of an incentive to scale back coverage.
Using the option would force Obama to go back on his campaign rhetoric. But administration officials are willing to live with a rhetorical flip-flop if it helps them do the math and fundamentally reshape the fastest-growing segment of the economy.
About 70 percent of Americans who have health insurance get it through their employers. Typically, the cost of the premiums are split between worker and employer, and the portion paid by the worker is excluded from taxable income.
To pay for the changes Obama is calling for, Senate Finance Committee members are exploring taxing the coverage of single taxpayers who earn more than $100,000 or married couples who make more than $200,000. House Ways and Means Committee Democrats are said to be weighing similar proposals and met with Obama at the White House on Tuesday afternoon.
Though the new tax would capture a significant number of middle-class workers, the White House is ready to endorse it, if the majority of lawmakers on the tax-writing committees sign on. And administration officials already are preparing a justification, by arguing that fixing the U.S. health care system is too important to founder on questions about how to finance it, according to officials familiar with the administration’s thinking.
Obama himself will begin make the case at a series of campaign-style appearances across the country, beginning with a town hall meeting on Thursday in Green Bay, Wis., and in private meetings with lawmakers.
Some Wiggle Room
Experts predict the administration will seek to give its allies in Congress wiggle room, by forestalling any major overhaul until after the 2012 election. That would prove both politically savvy and practical, because experts think it would take several years at a minimum to set up such components as a national “health insurance exchange” where individuals or employers could obtain coverage, including from a government-run plan.
White House officials will repeatedly make the case that the overall savings working Americans obtain from a revamped health system will trump concerns about paying taxes on health benefits.
This argument already has been dubbed “It’s all about the net,” meaning the net annual cost of health coverage, and reflects the administration’s bottom-line rationale for any substantial health care overhaul.
“The average human thinks about what he paid for health care last year vs. what he’s paying now and what coverage guarantees he gets,” said Nichols. “There’s a good chance you could sell this within the administration’s world view, because what people focus on is the net.”F
Comments
www.1payer.net -- HR 676 -- Get the health insurance parasites out! The US will save $350 billion in the first year of implementation.
Only two alternatives? either or? Why not both??
The reality is there is no magic bullet. You cannot insure 47 Million uninsured people without raising taxes on those already insured. I knew this was a lie during the campaign when Obama claimed it. I prefer the other option of forcing those who have no insurance into buying policies. Most of those are young Obama voters. Once these young healthy low risk types are added to the risk pool everyones rates should decrease.
Singlepayer covers everyone and cost HALF as much as we spend NOW!! Singlepayer is the ONLY way to control cost!! Singlepayer stops Medical Bankrupcies!! Single payer is simple and the majority of people in this country want it, they're tired of sending to Canada for cheap medications. Singlepayer or Nothing!!!
The Obama administration is planning to conver illegal aliens in his health care plan. How will they pay for it or will they get it free?
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