03/18/2010 05:12 am ET | Updated May 25, 2011

Health Care's Next Big Fight: Tax the Rich or Slam Workers?

The unveiling last week of new health reform bills by House and Senate leaders has focused most public and media attention on the scope of the public option. But, in truth, neither the House nor Senate versions of that measure could offer the extensive, affordable coverage that reformers are hoping for or that Democrats have been promoting.

Labor unions, joined with other progressive organizations like Health Care for America Now, will be pushing to strengthen the legislation when the bills come to floor votes, but they're also focusing their efforts on ensuring that midde class families and union members aren't slammed by a whopping 40% tax on insurers offering so-called Cadillac plans.

That's what the Senate bill does, in essence, by passing along the costs to workers, while the House version seeks to impose a surtax on America's wealthiest families, the top 0.3%: taxing a portion of $500,000 for individuals and $1 million for couples. Already, Republicans are gearing up anti-tax rhetoric that could spook moderate Senate Democrats facing re-election.

"The biggest gulf between the House and Senate versions are the financing pieces: how to pay for it," observes Alan Charney, the program director of USAction, the lead grassroots organization in the Health Care for America Now (HCAN) coalition, with its 1,000 local and national groups, including labor organizations.

"The House and Senate are closer on a public option," he notes. "The House is fair and progressive on financing," but the Senate far less so, he argues. Indeed, even the Congressional Joint Committee on Taxation noted that the plan would end up taxing nearly half of all employer-based plans.

So, Charney notes, "We're going to have weigh in," as they've already begun doing with advertising and grassroots support slamming the Senate version, but he concedes that in the Senate, adding a tax-the-rich provision faces "rougher sledding."

There is more about these deep divisions that could affect health care reform at the Working In These Times blog.

Yet these differences aren't getting the attention of other potential stumbling blocks on the way to reform, even as the progress that's been made exceeds much of the inside-the-Beltway "wisdom" of the last few months. As The New York Times reports on where we stand now:

The bills have advanced further than many lawmakers expected. Five separate measures are now pared down to two. But the legislative progress has come at a price. In the absence of specific guidance from the White House, it has moved ahead in fits and starts. From here on, the challenges will only grow more difficult.

In the House, where leaders have vowed to pass a bill by Nov. 11, a fight over abortion coverage could still imperil the legislation, and Mr. Obama could lose some votes from liberals upset that the bill includes a weakened "public option," a government insurance plan to compete with the private sector. Mr. Obama, trying to keep progressives in line, met with them Thursday night in the White House Roosevelt Room.

In fact, though, the emphasis on 60 votes needed as essential for passage may prove to be as much of a canard as the notion just over a month ago that the public option was essentially dead. Reid and other Democrats have hinted that they may use the budget reconciliation process that just needs a simple majority to pass.

And now there's a growing realization that the public option, especially in the House version with its reliance on negotiations with health care providers, won't save consumers money -- and could even cost more. As the Times and others have pointed out:

For months, many leading Democrats, including President Obama, have pushed for the creation of a government-run insurance plan to compete with private insurers.

A main argument was that a public plan would save people money. It would not be under pressure to earn profits, pay high private-sector salaries or deny needed care.

But after House Democratic leaders unveiled their health care bill on Thursday, the Congressional Budget Office said the public plan would cost more [emphasis added] than private plans and only six million people would sign up.

One reason the public plan would not save customers money is that it would have to negotiate payment rates with doctors and hospitals just like private plans.

The House speaker, Nancy Pelosi, wanted a more "robust" public plan with payment rates tied to Medicare. But in the end she could not muster the votes, largely because of opposition from lawmakers in states where Medicare rates are lowest.

But amid all the scrapping over the public option, the hard questions of how to pay for reform just aren't being asked by many in the media or liberal blogosphere (except for a few, like Ezra Klein and Jonathan Cohn) covering this issue.

Even though the AP and other publications have offered some dry comparisons between each chamber's bills, the vast gulf between the House and Senate approach to taxation hasn't been emphasized. But here are some of the key differences, as the AP reported:


HOW IT'S PAID FOR: $460 billion over the next decade from new income taxes on single people making more than $500,000 a year and couples making $1 million. (The original House bill taxed individuals making $280,000 a year and couples making more than $350,000, but the threshold was increased in response to lawmakers' concerns that the taxes would hit too many people and small businesses).

There's also more than $400 billion in cuts to Medicare and Medicaid; a new $20 billion fee on medical device makers; $13 billion from limiting contributions to flexible spending accounts; sizable penalties paid by individuals and employers who don't obtain coverage; and a mix of other corporate taxes and fees.

REQUIREMENTS FOR INDIVIDUALS: Individuals must have insurance, enforced through a tax penalty of 2.5 percent of income. People can apply for hardship waivers if coverage is unaffordable.


HOW IT'S PAID FOR: Fees on insurance companies, drug makers, medical device manufacturers. Tax levied on insurance companies, equal to 40 percent of total premiums paid on insurance plans costing more than $8,000 annually for individuals and $21,000 for families (that number may rise to $23,000); retirees over age 55 and people in high-risk professions may be allowed to have somewhat more valuable plans before they're taxed. Cuts to Medicare and Medicaid. A fee on employers whose workers receive government subsidies to help them pay premiums. Fines on people who fail to purchase coverage.

REQUIREMENTS FOR INDIVIDUALS: Almost everyone must get coverage through an employer, on their own or through a government plan. Exemptions for economic hardship. The Senate Finance Committee version required individuals and families to buy coverage as long as it cost no more than 8 percent of their income. Those who are obligated to buy coverage and refuse would face a fine of perhaps $100 in the first year of the program, likely increasing over time.

And while unions, among others, are backing the reform legislation, pitfalls in both the Senate and House bills could undermine genuine healthcare reform. As reported by Roger Bybee in In These Times, the flawed new legislation if not improved before passage, some reformers believe, could potentially resucitate the right wing if it falls flat in practice -- while enraging working families penalized for not buying coverage.

There's still plenty of conflicts to be resolved, with labor groups and progressives playing a key role, in both chambers of Congress. The left wing of the party, especially the netroots, are also stepping up attacks on wayward Senators and Senator Lieberman in the Democratic caucus who might back a GOP filibuster.

The fight for true health care reform has only really just begun.

Read more about health, labor and financial reform issues at The Working In These Times blog.