Tax on Medical Benefits Gains Traction

Health-Care Overhaul Could Be Funded by Levy on Employer-Paid Insurance Premiums

By Lori Montgomery

Washington Post Staff Writer


Friday, May 22, 2009

A new tax on employer-provided health insurance is emerging as a likely
option to finance an overhaul of the nation's health-care system, key
Democrats say, despite opposition from organized labor and possibly the
Obama administration.


Critical details have yet to be resolved, including whether to tax
the benefits of all workers regardless of income and what portion of
their employer-paid insurance premiums to tax. But the idea won a
surprising degree of acceptance during a closed-door meeting of the
Senate Finance Committee this week, according to several people
present. And once-fierce opposition among House Democrats is softening
as lawmakers confront their limited options for raising the estimated
$1.2 trillion that will be needed to pay for reform over the next
decade.

"There's a strong sentiment that still exists in the House" against
taxing employer-provided benefits, said Rep. John B. Larson (D-Conn.),
a member of House leadership who sits on the tax-writing Ways and Means
Committee. "But we understand how important it is to get a package
through."

Implementing such a tax would create a tricky
political situation for President Obama, who last year spent millions
on campaign ads that harshly criticized a similar idea advanced by his
Republican opponent, Sen. John McCain of Arizona. But while continuing
to express opposition to the proposal, White House officials have
repeatedly stated that all financing options are on the table. And some
Democrats are already calculating how to explain a reversal.

That task may have been made easier this week when congressional Republicans
proposed using the tax to finance their own health-reform blueprint, lending the idea a bipartisan stamp of approval.

Excluding employer-provided benefits from taxation "is one of the
distortions in the health-care marketplace that needs to be fixed,"
said Rep. Paul D. Ryan (R-Wis.), one of the plan's authors. "It was put
in place in the mid-20th century when everyone had the same jobs for
most of their lives. And we don't live like that anymore."

According to U.S. Census data, 177 million Americans received health
insurance from their employers in 2007, the most recent year for which
data are available. Nearly two-thirds of people under 65 have at least
some of their insurance premiums paid by their own employer or that of
a family member.

Under current law, those benefits are not taxed as income, one of
the largest loopholes in the U.S. tax code. If the loophole were
eliminated, congressional tax analysts estimate that the IRS would have
collected an extra $133 billion last year alone.

Senate Finance Committee Chairman Max Baucus (D-Mont.), who expects
to unveil health-reform legislation next month, has said he is not
interested in closing the loophole, but in establishing limits. Among
the options: Taxing only the benefits of high-earning individuals who
make at least $200,000 a year ($400,000 for families). Or taxing
benefits for all workers above some pre-set amount. One figure under
discussion is $13,000, the national average value of employer-provided
coverage for families.

Both options have disadvantages. Taxing only wealthy families, for
example, "doesn't make sense," said Sen. John F. Kerry (D-Mass.),
because it would raise too little money -- only about $160 billion over
10 years, according to Finance Committee aides. But "you've got to be
very careful how far you go" down the income ladder, Kerry said. "If
you come down too low, you're impacting workers and threatening the
employer-based system."

Some Democrats are particularly concerned that the tax would fall
heavily on union members, who tend to have generous health packages
sometimes derided as "Cadillac" plans. But those plans are expensive
because they include dental and vision benefits, large provider
networks and low co-payments -- "things every American wants and should
have," said Richard Kirsch, national campaign manager of Health Care
for America Now, a coalition of unions and community organizations.
Kirsch yesterday endorsed an alternative tax plan drafted by Citizens
for Tax Justice that would target corporations and the wealthy for $1
trillion in tax increases over the next decade.

Capping employer-provided health benefits would generate around $500
billion over the next 10 years, by various estimates, and key Democrats
say it may be the only politically viable option for raising that kind
of cash.

"Everyone hates it," said a member of the House Ways and Means
Committee, speaking on condition of anonymity because he has yet to
discuss the issue with his colleagues. "But where else do you go?"

Buzz up!Share this Article: