Senate Finance Committee weighs proposal to tax employer health benefits, other plans to pay for health reform

The Senate Finance Committee on Tuesday heard arguments for taxing employer-sponsored health care benefits as a means for funding a comprehensive health care overhaul, the Wall Street Journal reports.

Neither employers nor employees currently pay taxes on health benefits (Adamy, Wall Street Journal, 5/13). The Joint Committee on Taxation estimated that the tax exemption represented $246 billion in lost federal tax revenue in 2007 (Armstrong [1], CQ Today, 5/12). According to the Lewin Group, the exemption will represent a loss of $297 billion in 2010 (Wall Street Journal, 5/13).

During the campaign, President Obama opposed taxing employer-sponsored health care benefits, a pillar of Sen. John McCain's (R-Ariz.) health care plan. White House aides say Obama is open to suggestions from Congress (Alonso-Zaldivar, AP/Seattle Post-Intelligencer, 5/13).

Many health policy experts at the Finance Committee roundtable told the senators that adjusting the tax exemption is necessary in order to pay for Obama's proposed health care overhaul. Robert Greenstein, executive director of the Center on Budget and Policy Priorities, said, "I don't see how you can get a package that's going to fully get there without touching the exclusion" (Edney, CongressDaily, 5/12). Jonathan Gruber, an economist at the Massachusetts Institute of Technology, said, "There is no expert who, if setting up the system today, would include the tax exclusion for health insurance."

Possible Modification, Not Elimination

Committee Chair Max Baucus (D-Mont.) said, "We are not going to eliminate that exclusion," but "we should look at ways to modify the current tax exclusion so that it provides the right incentives" (Armstrong [1], CQ Today, 5/12). He added that Congress could consider placing a cap on the amount of benefits that can be exempt and could place an income limit for the exemption (Fritze, USA Today, 5/13).

John Sheils, senior vice president of the Lewin Group, said capping the tax exemption at the average that employees pay for health benefits would raise $700 billion over a decade and encourage employees to purchase more efficient insurance coverage (CongressDaily, 5/12). Greenstein said that a combination of capping the tax exclusion, requiring U.S. residents to be covered and requiring employers to contribute to the cost of coverage would make the system of employer-provided health care stronger and make health care costs rise more slowly (Armstrong [1], CQ Today, 5/12).

Gerald Shea of the AFL-CIO said that limiting the tax exemption is "a step in the wrong direction" because it would hurt employees who negotiated for better health care coverage rather than better wages (USA Today, 5/13). Shea added that the idea of taxing employer-sponsored insurance could "disrupt the primary source of health coverage and financing for most Americans" (Budoff Brown, Politico, 5/13).

Senate Health, Education, Labor and Pensions Committee ranking member Mike Enzi (R-Wyo.) on Tuesday at a Heritage Foundation event said that he supports repealing the tax exemption, adding, "If we're serious about health care reform, we will leave the tax exemption on the table" (USA Today, 5/13).

Baucus said that other health care tax benefits, such as health savings accounts and itemized deductions for health benefits, should be evaluated (CongressDaily, 5/12).

Other Taxes, Funding Also Considered

The Finance Committee also considered proposals to create new taxes on alcohol, tobacco, and sugary drinks such as soda, which could raise $600 billion over 10 years, Politico reports (Politico, 5/13). Senators also heard proposals to change the provider payment system to link payments to quality (Wall Street Journal, 5/13).

Hearing Protest

Demonstrators supporting the creation of a single-payer health care system interrupted the hearing, CQ Today reports. A group of 20 or more nurses dressed in red scrubs stood up at the beginning of the hearing and turned their backs on Baucus. They wore messages that encouraged the development of a single-payer system and opposed efforts of America's Health Insurance Plans, a trade group opposing any type of government-run health plan as part of reform legislation. According to CQ Today, the protest is the second time demonstrators have disrupted a committee meeting on health care reform in a week (Armstrong [2], CQ Today, 5/12).