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Rose Ann DeMoro Headshot

Go Ahead, Tax those Benefits, It's Central to the Health Plan

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Enough already on the hand wringing over the plan to start taxing employee health care benefits.

The tax is not a threat to the type of reform plan expected to emerge from Congress. It's a central element -- to pay for the massive public bailout of the health insurance industry and as a backdoor way to cut costs by discouraging people from seeking medical care.

Here's the basic scheme of how this complicated plan is supposed to work:

Everyone not presently covered will be forced to buy private insurance -- the ostensible solution to the nettlesome problem of the 45 million uninsured Americans and the 20,000 people who die every year because they don't have health coverage.

Forced insurance, also known as individual mandate, is the caveat for the insurance industry "concession" to stop refusing to sell policies to people with pre-existing conditions and dropping enrollees when they get really sick.

Never mind the dubious decision to bribe the insurance companies with public money. That's just the way it is since the politicians calling the shots have already decided that any option that ends our dependence on profiteering insurance companies, such as single payer, is not fit for public debate.

Ordering everyone to buy insurance, however, is a little messy. Especially in a deep recession when many are losing their employer coverage, premiums have soared four times faster than incomes in the past decade, and 62 percent of personal bankruptcies are now linked to medical bills.

To offset the cost of all that insurance people are being forced to buy, our legislators will provide public subsidies to low and moderate income individuals and families, which become a pass-through to the private insurance industry.

How to pay for this sweeping insurance bailout is the conundrum. Especially when your bill is rather fuzzy on how it will restrain what the insurers can charge. That's the problem vexing Massachusetts, the national model for this approach, which is now limiting enrollment and reducing covered services, such as dental care, because of the cost.

Presto -- the tax on employer benefits, a potential revenue stream of as much as $300 billion.

Despite the fact that President Obama made his opposition to this tax a centerpiece of his campaign against John McCain. And despite the fact that taxing employer benefits just might prompt the massive disruption the Administration says is the reason for not considering single payer.

As the Boston Globe editorialized last fall, the tax would encourage young, healthy workers to reject their employers' taxable benefit and plunge into the private market, leaving employers with a more costly insured base of older, less healthy workers which would drive up their cost. "The likely result is many companies would drop coverage altogether," said the Globe.

To which the Dallas Morning News added, quoting health policy wonks, this could "lead to the death of company-provided health plans."

But, look on the bright side, as in whose pockets get lined. If we can bankroll the banks, why not insure the insurance companies.

For those keeping score at home, that's another $300 billion for a fraternity whose 18 biggest members, such cuddly folks as Unitedhealth, Wellpoint, Aetna, Humana, and Cigna, made $44 billion in profits over the last three years. And whose 151 top executives collected just under a tidy $1.1 billion in total compensation (CNA/NNOC research based on SEC filings).

To soften the blow, the Democratic leadership says it will try to limit the tax to just the "Cadillac" plans, a euphemism for comprehensive coverage.

In other words, plans that are not skeletal, with thousands of dollars in deductibles and co-pays and massive gaps in coverage. The kind of plans that once taxed, younger, healthier workers are most likely to dump in favor of the bare bones, high deductible private plans while gambling they don't get sick and need the actual comprehensive coverage.

Or to put it another way, a penalty on employers who have actually been good citizens and provided their workers with comprehensive health benefits.

Which brings us to the final policy argument for the tax. Using the tax code to discourage the availability of comprehensive health plans except for the wealthiest Americans will promote the proliferation of even more junk insurance plans.

And, what happens when people have plans with limited coverage and high out of pocket costs? They put off doctor visits, immunizations for their kids, defer dental work, and skip other needed care.

Implement the tax on benefits and the 53 percent of Americans who told pollsters earlier this year that they or a family member had self-rationed care because of the cost the past 12 years will be remembered fondly as the good old days.

But, to the experts and policy wonks, that's a good thing. The reason for high health care costs, they say, is not insurance industry or drug company profiteering, it's "over utilization" of medical care. Be patriotic, don't go to the doctor.

So, by taxing health care benefits, we can all pitch in and contribute to health care reform. Don't you feel better already?