Health benefits tax gains support in Congress, opponents in business

"You can think of Congress's efforts to pay for health reform as being a little bit like a battle to slay a many-headed Hydra," writes the New York Times' economic columnist, David Leonhardt.

Congress has floated idea after idea for paying for comprehensive health reform, but their proposals have failed to make ends meet because they "do not raise revenue as quickly as health costs rise." Most new taxes - such as a surtax on the rich proposed in the House - increase only as quickly as the economy, while health costs have inflated much more quickly over the last decade.

One way around the problem is to tax something that grows as quickly as health costs: health spending. "If Congress taxes health care, the revenue has a chance of rising with health spending. A health tax will also create an incentive for workers and businesses to slow the growth of health spending - thus reducing the amount of taxes needed to pay the nation's health bill." The Senate Finance Committee, whose anxiously awaited proposal could be released this week, "has been considering precisely such a tax, on the health benefits that Americans receive from their employers." One problem with the plan is that new taxes on workers - or employers - are not politically popular (Leonhardt, 7/28).

One solution is a plan to shift that tax to insurers that offer "individual plans valued at more than a certain limit, likely $25,000 or higher. The insurers would have to pay an excise tax on such policies, and the cost would likely be passed on to employers," the Wall Street Journal reports. The plan could also curb growing health costs by charging insurers, employers and perhaps workers more for "plans that encourage unnecessary tests and procedures."

Existing proposals in the House hope to pay for health care by increasing taxes for top earners, but given that the tax on insurers offering gold-plated plans would grow comparably with health costs and give everyone involved a reason to restrain spending, some congressman are now growing interested. Majority Whip Jim Clyburn, D-S.C., called the tax on benefits "a better way" to pay for reform than boosting income taxes. Majority Leader Steny Hoyer said it's a "reasonable alternative" (Hitt and Bendavid, 7/29).

Not everyone is enamored, however. In addition to insurers, who the tax targets, many big businesses could also be forced to pay direct taxes under the latest benefits-tax plan, which was first proposed by Sen. John Kerry, D-Mass, Kaiser Health News reports. More than half of all workers who receive insurance through their employers are actually covered directly by their companies, business that are said to be "self-insured." Under Kerry's proposal, those companies would be taxed just like insurers if the benefits they offer employees add up to more than the $25,000-a-year threshold (Gold, 7/29).

In addition, "some insurance experts say the reason certain plans are so expensive isn't that they're providing lavish benefits like full-body diagnostic scans and tummy tucks. Instead, the super-high premiums are likely being charged to older, sicker people, either as individuals buying their own coverage, or working for a small employer," the Associated Press reports (Alonso-Zaldivar, 7/28).