Thursday, Dec. 24, 2009

Footing The Health-Care Bill

Although both the House and Senate bills would reduce the deficit by more than $100 billion over ten years, they achieve that feat by very different means. The House bill would raise $461 billion by applying a new 5.4% income tax on families earning more than $1 million per year and individuals making more than $500,000. The Senate bill would increase the Medicare payroll tax for families earning over $250,000 and individuals earning over $200,000, but would also tax health insurance itself, applying a 40% excise tax on health plans valued above $8,500 for individuals and $23,000 for families. (Only the amount exceeding these thresholds would be taxed.) This new tax on so-called "Cadillac plans" would raise $149 billion over 10 years. Exceptions would be made for Americans over 55, those working in high-risk jobs and (initially) those living in states where health care costs are highest. Both the House and Senate bills also raise revenue by penalizing Americans who don't buy health care coverage and reducing Medicare spending, largely from cuts in the Medicare Advantage program in which private insurers provide coverage to Medicare-eligible Americans but at a higher cost to the government. Both bills would also tax medical device makers, with the Senate bill also calling for massive fees on the pharmaceutical and health insurance industries.

The House plan to tax high income earners generates far more revenue and doesn't affect the middle class like the tax on health insurance plans likely would. (Municipal employees and manufacturing union members are among those with high value high plans that could exceed the excise tax threshold). But the excise tax on Cadillac plans has another purpose - by discouraging high-value insurance plans, health care economists expect overall medical spending to decrease; in addition, by taxing the fast-growing cost of insurance itself, the Senate plan may have a better chance of keeping up with medical costs, something a high-income tax like the House's would not accomplish. Research also indicates that when workers get lower cost health insurance plans through their employers, wages increase.

Unions have been pushing Democrats hard to eliminate the tax on Cadillac plans or at least raise the threshold for which plans would be taxed, the latter of which could bring House Democrats on board without alienating Senate supporters of the excise tax. To make up for the lost revenue, Senate Majority Leader Harry Reid could agree to a Medicare payroll tax higher than what's called for in the current Senate bill.