Inside Health Reform
October 21, 2009
CONTROVERSY SURROUNDING EXCISE TAX SUGGESTS COMPROMISE LIKELY
Vol. 1 No. 37
by Amy Lotven
Although a majority of unions have attacked the Senate Finance Committee's plan to tax high-cost insurance plans, one group has indicated it is willing to compromise should the current threshold increase. A source for a labor group that did not wish to go on record tells Inside Health Policy that Sen. John Kerry's (D-MA) goal of increasing the threshold to $25,000 for a family plan is "much, much better" than the current policy. However, another labor source said his group remains steadfast against the tax at this juncture.
Asked if the union would find an increase in the threshold or perhaps a policy that would only apply the excise tax to workers making a higher wages -- as the first source suggested -- more acceptable, Chuck Loveless, director of legislative policy for the American Federation of State, County and Municipal Employees (AFSCME) said that the union is "not discussing a compromise at this point."
AFSCME is one of 27 union groups who reportedly defied a request from White House Chief of Staff Rahm Emanuel to stay quiet on the subject and instead ran an ad attacking the Senate Finance Committee bill for its failure to include a public insurance option and for including the tax. AFSCME says that the tax, which would be applied to plans with premiums more than $8,000 per individual or $21,000 for families, will disproportionately affect those who are older and sicker and employed by smaller firms. "That's not the change America voted for," the ad says. "A new tax on the middle class is unacceptable."
Conservative members have also attacked the tax, as have more than 150 House members who recently sent a letter to House Speaker Nancy Pelosi (D-CA) in opposition to the proposal. Critics from both sides have compared the concept to the alternative minimum tax, which was originally meant to impact the wealthy but over the years has affected more and more middle class taxpayers.
Complicating the issue, however, is that the tax is not only one of the largest revenue raisers in the Senate Finance bill but, as Senate Finance Chair Max Baucus (D-MT) reaffirmed in a teleconference Monday, the Congressional Budget Office has determined that the policy is one of the best cost-controlling mechanisms in the health reform legislation.
Emanuel also made that point. Speaking on CNN's "Face the Nation"on Sunday, Emanuel said that "one of the most effective ways of putting downward pressure on health-care premium increases is a disincentive to ever-expansive and expensive plans. And that was seen by the Congressional Budget Office as an important piece of controlling health-care costs."
"There is a very important way you can design this to protect working families, but it is important to do it in a way that you also achieve the objective that disincentivize health insurance industries from continuing to offer plans that basically just run up costs and premiums," he added.
The White House did not respond to a query by press time regarding how Emanuel wanted to design the tax so that it bypassed working class families.
Although Kerry helped initiate the idea of taxing the high-cost insurance plans after the White House shot down the concept of raising revenue to pay for health reform by capping the tax exclusion on health benefits, the Massachusetts senator has consistently said that threshold produced by the committee is too low.
Prior to the Finance committee's vote last Tuesday, Kerry acknowledged that he may not reach his goal, but he and several other liberal senators continue to work on the issue. Senate health committee Chair Tom Harkin (D-IA) told reporters during a Friday (Oct. 16) teleconference that he believes the threshold will ultimately increase. "I think it starts too low and there's going to have to be some modifications," he said. It will have to be increased, how far, I don't know. He also said that there may have to be a "carve out" for people who have more costly policies due to the the fact that they're dealing with long-term chronic illnesses that requires a lot of care.
In those cases, the insurance is a "lifesaving," not a "Cadillac" plan, Harkin said.
Currently, the legislation would impose a 40 percent excise tax on single plans that exceed a premium of $8,000 for singles and $21,000 for families. The threshold is increased by $1,850 for single and $5,000 for families plans for people engaged in certain "high-risk" professions and for retirees over the age of 55; the legislation also provides relief for people living in the 17 highest cost areas of the country. The tax would be indexed to the Urban Consumer Price Index plus one.
Finance members Charles Schumer (D-NY), Jay Rockefeller (D-WV), Debbie Stabenow(D-MI), Robert Menendez (D-NJ) and Kerry all said in an alternative view of the legislation posted by the committee Monday that they hope to work with Baucus to mitigate the impact of the tax. Kerry has suggested increasing it to $9,800 for singles and $25,000 for families.
Democratic House members have also expressed deep concerns with the proposal, as have GOP lawmakers. Many have argued that the tax could ultimately result turn into something akin to the alternative minimum tax (AMT) which was originally designed to affect higher income people, but eventually encompassed more and more middle-class taxpayers.
The Joint Committee on Taxation (JCT) says that the excise tax would raise approximately $200 billion over a decade. The majority of the revenue is not necessarily expected to come from the tax itself, but rather from an increase in taxable wages that analysts foresee as a result of the tax policy.
Loveless, of AFSCME, argues that there are several "more progressive" ways to raise revenue than the tax. Ideas currently on the table include the House health reform bill's surtax, as well as reforming the Medicare tax to cover unearned income or using the president's original idea of increasing the cap for itemized deductions. In addition, Loveless said, House Speaker Nancy Pelosi has been talking about including a new "windfall" tax on insurance companies.
Liberal public policy analysts at Citizens for Tax Justice suggested the idea of reforming the Medicare tax in a July 7 paper. CTJ said that extending the Medicare tax to unearned income and making several other reform could bring in about $500 billion over 10 years. The president's concept, which has been roundly rejected by Congress, would bring in more than $300 billion over 10 years. -- Amy Lotven