Tax on Medical Benefits Gains Traction
Health-Care Overhaul Could Be Funded by Levy on Employer-Paid
By Lori Montgomery, 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
"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
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
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
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?"