Taxing Health Benefits Could Kill Health Care Reform
In recent days, two generally progressive commentators have written in favor of taxing all or part of the value of employer provided health benefits as a way of paying for some of the costs of health care reform. They've suggested that AFSCME might "kill" health care reform because of our opposition to taxing the value of benefits. Of course we reject that characterization of our efforts.
In fact, AFSCME plays a leading role in the effort to pass real health care reform. Our stand against taxing benefits is grounded in a conviction that regressive taxation cannot cure our health care ills. Just as importantly, we are concerned that linking an unpopular tax to health care reform could kill our efforts to provide health care for all.
The argument in favor of taxing benefits centers on two points. First, like all tax exclusions and deductions, the exclusion of health benefits from taxation is worth more to higher income individuals who are in higher tax brackets. Second, the federal government foregoes $145 billion annually by shielding employer-sponsored health care benefits from taxation. Fair enough.
But there are real risks that come with a tax on health benefits. They include the likelihood that employer-sponsored insurance will be destabilized at a time when it should be reinforced; the disparate impact a change in policy will have on people who are older, sicker or in higher cost areas; the disproportionate burden a change will have on children and families; and an erosion of benefits and shifting of risk to individuals.
Some argue in favor of a compromise that would tax only "Cadillac" or "gold-plated" health insurance plans. But that won't work. Just last month, The Commonwealth Fund reported that "many so-called "gold-plated" health benefit premiums are high only because insurance costs vary according to the size of the firm, the geographic region in which it is located, and the composition of the employer's risk pool." Establishing a universal cap in today's insurance market, they noted, "will have a disproportionate impact on workers in small firms, high-cost areas, and expensive risk pools."
In addition, we need to consider the wisdom of taxing health benefits in light of the alternatives. For example, according to the Senate Finance Committee, the favorable tax treatment afforded to Capital Gains and Dividend income costs the government $178 billion per year. However, unlike the tax treatment of health benefits which goes to a broad swath of the American public, a very narrow economically privileged slice of taxpayers benefit from this favorable treatment.
This begs the question: why levy a tax on working people when this inequitable favorable tax treatment, primarily available to the wealthy, remains in place? Many of the same progressives who advocate taxing health benefits have rightly railed against rising income inequality and the dangers it presents to robust economic growth. Why not fund health care, mostly for low income underinsured and uninsured people, while simultaneously addressing one of the biggest causes of wealth inequality?
The introduction of the health benefits tax could well be the death knell for health care reform. In the historic 2008 election campaign, then Senator Barack Obama campaigned hard against the taxation of benefits, a key component of John McCain's health care policy. President Obama recognized the taxation of benefits is unacceptable to the American public and made it a centerpiece of his campaign. He spent tens of millions of dollars on advertisements slamming McCain on the issue.
If anything, public opposition to a tax on benefits is growing. Recent polling indicates that 80 percent of likely voters oppose taxing the value of benefits while only 17 percent support it. Strong majorities oppose a health care tax without regard to political affiliation.
AFSCME opposes the health benefits tax because it could "kill" health care reform. Is there any better way to give Republicans cover to protect the insurance industry and their right wing cronies, and vote against reform, than to let them frame the issue as opposing a very unpopular tax? Do we hear Republicans campaigning in favor of taxing health benefits? Sometimes, progressives must be saved from themselves. That's what we are doing when we stand clearly in opposition to taxing benefits that America's working families earn on the job.
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Such failures to address the very real and legitimate concern out there among those of us with current health plans that we like, but who also favor major reform and are actually trying to fight for it, could not have worked out better for the opposition. They are tantamount to an Insider Sabotage of real health care reform. WHY in the WORLD should Congress spend months bringing “every,” (bad) idea to the table, and fashioning a bill, that President Obama would not sign? The answer there, is there is no logic in wasting the effort on something that will not get signed; but he is content to let “Every Idea,” get into the bills that will be considered. In the end, this is sending a message to me, and to lots of other Progressives: “There are no lines, no absolutes, and nothing is non-negotiable, because in the end I am just going to sign whatever Congress puts in front of me.”
A conservative guess might be, probably $ 5,600 in higher deductibles and co-pays, but what if you are hospitalized? Then it will probably mean the difference between 100% of your stay & procedures covered, and you paying at least 20% of the total cost, and it sure adds up fast. So, I suppose there is a net savings to be had in this scenario for someone along the healthcare food chain, but it will most certainly not be you.
However, the most distressing part about this whole thing is that Candidate Obama campaigned on, and earned our votes with, a clear pledge to keep Taxation of Employer-based health care OFF THE LIST of potential cash cows. As one brilliant person remarked in an interview on NPR recently, “President Obama must be REALLY upset with Candidate Obama for going and raising our hopes like that!” Now, the White House press secretary will not even answer the question when asked, is this campaign promise going to be honored, or not? It is certainly not reassuring to hear the repeated mantra from our President that “all ideas are on the table,” or “nothing is set in stone,” or “no lines in the sand,” and “everyone should bring their ideas to the table.”
There are several other scholarly articles out there that describe, in chilling detail, the rationale for taxation of health benefits. The best ones also point out that there is really no evidence for any benefit, in terms of cost savings, to using this approach. The reasoning employed to argue for taxation of health benefits goes like this: people with expensive (this does not mean that the plan is necessarily great, but it is a plain fact that INexpensive policies obtained via insurance companies are NEVER comprehensive, so equate “expensive,” with “comprehensive,” here) policies that are more comprehensive, MUST BE OVER-USING the healthcare system. I’ll say it again, just because it is so bizarre- if your policy costs more, then you will just overuse the system! I’ll leave this one to the commentators to follow, but I have pretty good coverage, it is costly, but that does not mean that I am so bored (and/or lonely?!!!) that my idea of a great night out is going to visit the nice people at the Urgent Care… Anyway…since we must be overusing, if we now get taxed on our benefits, we will all decide to move into a CHEAPER PLAN (ie., less comprehensive, with more out-of-pocket costs) that will bring our benefits package BELOW THE TAXATION THRESHOLD, ie $4,000. What would you guess the differences in coverage might be for a $9,600 per year plan and a $4,000 one?
I should also point out that there will clearly be no complementary legislation in the bill requiring employers to increase our salaries by the amount of the additional tax, which would be dumped on us just when many of us still lucky enough to be in a group plan (right now, this is the only kind that will actually pay any claims if you do get sick, and then not rescind your policy retroactively, after major surgery, chemotherapy, transplants etc) are also seeing alarming pay cuts and increases in State and commodity taxes. After all, what incentive will employers have to increase our wages? Right now they can write off the cost of providing coverage to employees as a business expense, so there is incentive for them to purchase good group plans. It is not at all certain that this would continue to be true under any plan to tax our health benefits; additionally, how many of us will be able to go for all those great, disappearing, better-paying jobs when our employers refuse to compensate us appropriately after such a measure passes?
Yes, under this plan, you are taxed on money paid to somebody else!!! I can assure you that there is no faster way to more completely undermine and utterly dismantle what little security and incentive the middle class has managed to hang on to, than to begin taxing us on income that somebody else, NOT US, is actually receiving. And please look at the scholarly reports, such as the June report for the Economic Policy Institute, that shows how this taxation would have unequal impact on individuals in employer-sponsored plans due to variation in rates across states, as well as disproportionately hitting those workers with very MODEST incomes like mine- NOT THE WEALTHY, as Sen. Bachus and others have falsely claimed. (Here is the url for this study: http://epi.3cdn.net/6ebf892f25e8ff210a_4nm6bnzfd.pdf).
This is absolutely not true; in fact the cap is based on the average value of a policy that federal workers have and which costs approx. $4,000 per year per person. For the rest of us who are not federal employees, take a look at average insurance policies in your state, because they vary WIDELY, and if you live somewhere like California, you can bet your policy costs substantially more than that. How will your policy be valued? Here is how it would work; whatever you would have to pay to continue your coverage through COBRA, is what your policy would be valued at. I can give you a real-life example: last year, when I received my layoff papers from the Univ. of California (I was lucky to find another position quickly, so I was spared the following scenario), I was informed that it would cost me a little over $800 per month to continue coverage. By my calculation, this would have been at least $9,600 per year. Under this proposal to tax our benefits as income, anything over $4,000 WOULD BE ADDED TO THE WAGE BOX on my W-2 and COUNTED AS INCOME RECEIVED; so voila, instead of just paying taxes on my (very) modest ACTUAL income, I would also pay taxes on an additional $5,600 per year, because this would count as income that I received, although it is actually MONEY being paid by my employer to an INSURANCE COMPANY.
There are so many distressing things about this development that I hardly know where to begin. First, Republicans and conservatives claim that this tax will target “Cadillac,” plans, “like those evil union members get!” Well, what exactly is a “Cadillac,” health plan? If that little epithet was intended to mean, “a health plan eats up tons of fuel ($$), cannot operate for very long without breaking down catastrophically, and is just generally inefficient,” then this could apply to just about anyone’s health plan right now. If the cap is set so that a family of four would now pay taxes on every dollar over $15,000 paid by the employer for their health plan, a little division shows that this is only $3750 per person. Using the $15,000 figure is just an attempt to fool casual readers/viewers/listeners into thinking, “Oh, I guess I will not be taxed, since I am single and my policy through my employer costs less than that. I guess everything is ok in the health reform department!”
Dispensing health care efficiently, and collecting the money to pay for it cheaply, that's the purpose of the exercise, no one can compete with the government at these two tasks, no insurance company, HMO, or hospital; nobody.
A national sales tax could pay for a public VA style system.
Every American choosing public care would receive all prescribed care and medications free, no insurance, no co pays, no precondition exceptions, free period.
Businesses selecting public care for their employees would not have to pay for or be involved in health care in any way.
ndividuals happy with their private systems could continue paying for, either by self pay, company pay, or private insurance etc, and using the systems that they like.
The VA has been controlling the problems with access, cost, quality, and malpractice successfully for years.
http://www.washingtonmonthly.com/features/2005/0501.longman.html
This dual choice will cost less than last years $2 trillion spent.
Taxing health care benefits is a good way for Democrats to turn over the reins of Government to the Republicans. If you're tired of being in the majority this should do it. This plan is right out of McCain's toy box. CNN Money did an analysis of this and found that giving tax credits as a replacement only worked for incomes over $100,000 per year. And the policies that could be purchased as a replacement were inferior. If you tax the benefits employers will drop them and you've got no money and twice as many people to cover. I cannot be more direct, taxing health benefits is stupid.
It would be better for anyone considering this as an alternative to just get a double barrel shotgun and blow off both feet. If money is required to offer healthcare then you should be straight up and write the appropriate tax legislation to do it. Between the wealthy and upper middle class they give away about $400 billion in tax boondoggles. Throw in over $100 billion in tax evasion and you start coming up with some real money. For the rest of us how about a buck a gallon on gas as our share, that's $140 billion it's honest and straight forward and will aid in conservation and balance of payments.
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