CQ TODAY ONLINE NEWS
June 8, 2009 – 11:10 p.m.
Taxing Health Benefits Wouldn’t Cover Full Cost Of Insurance For All
By Richard Rubin, CQ Staff
The most talked-about strategy to pay for overhauling the health care system — taxing a portion of employer-provided benefits — would generate $418.5 billion over the next 10 years, according to an early estimate from the Joint Committee on Taxation.
That’s not enough to pay the full cost of expanding health insurance to all Americans, but it would make a significant dent in the estimated $1 trillion price.
That makes capping the exclusion, but not altogether eliminating it, an attractive option for the Senate Finance Committee, which hopes to mark up its bill the week of June 22.
Chairman Max Baucus , D-Mont., and ranking Republican Charles E. Grassley of Iowa are counting on finding enough revenue from cost savings and revenue increases within the health care sector to cover the entire cost of the bill.
The estimate comes from a letter sent last week to the Finance Committee by the Joint Tax Committee, the official scorekeeper for tax legislation. The document has been circulating among lobbyists but it has not been released publicly.
The estimate assumes that the exclusion cap will be set at the cost of the “standard option” health plan for federal employees and then indexed annually for per-capita medical cost inflation. It does not consider the interactions between such a cap and other portions of the extensive legislation expected to transform the entire health care industry.
Taxing health-care benefits is controversial, particularly among Democrats. Last year President Obama campaigned against the idea, which was proposed by his Republican opponent, Sen. John McCain of Arizona.
Recently, the administration has signaled some openness to revisiting that position, but it has not publicly disavowed the campaign-trail stance. Additionally, many House Democrats oppose a cap.
Labor unions, a major Democratic constituency, strongly oppose changes to the tax exclusion. Many union contracts include relatively expensive health insurance plans, and the cap would suddenly make their members pay taxes on part of the value of those plans.
“Over the last several years, almost all of our members have sacrificed wages in bargaining in order to keep decent health care coverage,” a coalition of 31 unions wrote senators Monday. “These hard-working people are already in immense economic distress. Imposing what amounts to a tax increase upon them is unfair and very unpopular.”
The unions also argue that high-cost plans are not necessarily the “Cadillac” plans often derided by critics. They may be plans that include many older workers or those in geographic areas with higher costs.
The exclusion allows employees to receive unlimited, untaxed compensation in the form of health benefits. Liberal critics call it regressive, because the benefits of the exclusion tend to flow to higher-income workers.
Others argue that it encourages overspending on health care because workers and companies don’t bear the full cost of medical decisions. And still others say it creates a disparity between people who get health insurance through their employers and those who purchase it on their own with after-tax money.
But critics warn that changes to the exclusion might harm the employer-based system, a concern that the Joint Tax Committee acknowledged. A cap would lead to slightly lower premiums and less-generous health plans, the letter said.
Eliminating the exclusion entirely — an unlikely scenario — would result in 10 million to 12 million people losing employer coverage, according to the estimate. However, that number could be much lower, depending on the mandates and other provisions in the health care bill.
Committee Scores Other Options
The Joint Tax Committee letter also included revenue estimates for several other proposals.
Capping the exclusion for individuals at the level of the federal employees plan, but only for those people with more than $100,000 in adjusted gross income (and married couples making $200,000), would generate $162 billion.
A more stringent and thus politically less feasible cap — allowing only half of premiums to be untaxed — would raise $1.2 trillion.
Repealing the itemized deduction for medical expenses above 7.5 percent of adjusted gross income would save $180.7 billion.
Eliminating the exclusion for contributions to flexible spending arrangements and health reimbursement accounts, which cover out-of-pocket costs, would raise $68.6 billion. Under the cap proposals scored by the Joint Tax Committee, employee contributions to flexible spending arrangements and health reimbursement accounts would count toward the cap.
The committee also scored several other proposals that have gotten public attention but have little traction among lawmakers. A new federal excise tax of 3 cents per 12 ounces of sugar-sweetened beverages would raise $51.6 billion, while a uniform excise tax on alcohol of $16 per proof gallon would generate $61.5 billion.
Comments
Sef-defeating idea, too many employers would drop the coverage. What happened to Obama pledge that the middle class would not have ANY tax increae, much less this burden?
It was a given that the Obama healthcare plan would hinge on taking something away from those who already have health insurance. If Congress wants to find ways to reduce the cost of healthcare, tort reform would be a great start! Greedy lawyers with their capricious lawsuits drive up the cost of malpractice insurance for doctors. Because doctors live in fear of being sued, they order unnecessary tests to protect themselves.
If malpractice lawsuits had an impact on costs, you'd expect caps on damages to bring healthcare and malpractice insurance costs down, right? Multiple states have enacted caps on damage awards. However in these states, the costs of both healthcare insurance and malpractice insurance continued to rise.--the effect of malpractice lawsuits on costs is negligible.
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