Tax on Health Benefits Weighed
Senator Calls Levy 'Perhaps the
Best Way' to Pay for Overhaul
By Lori Montgomery, Staff Writer
Wednesday, June 10, 2009
A Senate plan to overhaul the nation's health system is likely
to include a new tax on some employer-provided health benefits
that exceed the value of the basic plan offered to federal
employees, currently about $13,000 a year for a family of four,
the chairman of the Senate Finance Committee said yesterday.
Sen. Max Baucus, (D-Mont.) said he is drafting the health reform
measure, which he expects to unveil next week. He told
reporters that taxing employer-provided benefits is "perhaps the
best way to raise money for an overhaul of the health-care
system" and offered details about the form that tax is likely to
Baucus said his proposal is likely to cap benefits at "a level
higher than the actual benefit that members of Congress receive
today." An employer-provided plan worth less than that
level would remain tax-free, he said, while any benefit
exceeding the cap would be taxed as ordinary income.
Such a tax, if adopted, would be phased in over "several years,"
Baucus said. And it would be likely to "grandfather" in
health benefits set as part of a collective-bargaining
agreement, he said, allowing union plans to remain tax-free
until new contracts can be negotiated.
Baucus declined to say how much money the proposal would
generate. The nonpartisan Joint Committee on Taxation
estimates that taxing employer benefits above the value of the
Federal Employees Health Benefit Plan, adjusted for inflation,
would generate nearly $420 billion over the next 10 years -- a
sizable chunk of the $1 trillion or more likely to be needed to
expand coverage for the uninsured.
A higher cap and exemptions for unions would make the tax more
politically palatable but would diminish the amount of money it
would raise. Baucus said the sums under discussion remain
"significant" but added that he is looking at a variety of other
money-raising options, including Obama's plan to limit the value
of itemized deductions for families earning more than $250,000 a
At a closed-door meeting of the Finance Committee last month,
the Joint Committee on Taxation also provided estimates for
repealing the tax deduction for certain large medical expenses
($180 billion over 10 years), a new tax on flexible savings
accounts and health reimbursement accounts (about $70 billion
over 10 years), a new 3-cent tax on sugary drinks (about $50
billion over 10 years) and higher taxes on alcohol (about $60
billion over 10 years). A more dramatic proposal -- taxing
half of all employer-provided health premiums -- would generate
$1.2 trillion over 10 years, according to a memo provided to
Finance Committee members. Baucus's comments came after a
lunchtime meeting of Senate Democrats at which lawmakers began
hashing out the complex details of a health overhaul.
"This is the first week of crunch time," said Sen. Charles E.
Schumer (D-N.Y.). "This is the first day when, instead of
looking at the car, we're starting to test-drive it."
Democratic leaders in both the House and Senate yesterday
continued to trickle out details of proposals without saying how
they would raise the money. The Senate Health, Education,
Labor and Pensions Committee released an outline that would
require the vast majority of businesses to contribute to
workers' health costs and would impose tight restrictions on the
practices of insurance companies. Like a developing House
plan, it would include government-sponsored insurance for people
who have trouble finding coverage on the private market -- an
idea adamantly opposed by Republicans.
Staff writer Ceci Connolly contributed to this report.