Taxing High-End Health Plans May Pit Obama Vs. Labor Allies

September 15, 2009

Taxing High-End Health Plans May Pit Obama Vs. Labor Allies


President Obama will likely enjoy a warm reception when he speaks at the AFL-CIO convention on Tuesday, but Big Labor isn’t happy about his latest idea for how to pay for a health care overhaul.

His speech to Congress last week left out House Democrats’ plan to slap a surcharge on high earners. Instead, he embraced taxing insurers on high-cost health plans, which is part of Senate efforts to craft a centrist bill.

Obama offered few specifics beyond a slimmer $900 billion price tag. But his financing idea is drawing fire from union allies, driving home how difficult it will be to pay for even a scaled-down health bill.

In his Sept. 9 speech, Obama made the idea sound like a no-brainer:

“This reform will charge insurance companies a fee for their most expensive policies, which will encourage them to provide greater value for the money — an idea which has the support of Democratic and Republican experts.”

He added, “This modest change could help hold down the cost of health care for all of us in the long run.”

The idea of taxing insurers on high-value plans emerged in July as an alternative to the more politically controversial idea of limiting the open-ended subsidy for employer-provided health benefits. The latter approach, which would tax some non-wage income, would directly affect take-home pay.

But while taxing insurers is more appealing to lawmakers, the version floated by Senate Finance Committee Chairman Max Baucus last week has hit a raw nerve.

Baucus proposed a 35% excise tax on the value of policies in excess of $21,000 a year for families and $8,000 for individuals.

That threshold “would capture a significant number of rank-and-file worker plans,” said Chuck Loveless, director of legislation at the American Federation of State, County and Municipal Employees.

Union workers tend to enjoy generous health benefits, so they would be particularly affected.

AFL-CIO’s incoming president, Richard Trumka, said Sept. 1 that Big Labor strongly opposes any tax on employer-based benefits.

Loveless says the excise tax would be unfair to people in parts of the U.S. with higher health care costs, such as New York, despite a proposed three-year transition.

And the Baucus plan would only index exemption levels to the consumer price index. So more-modest plans would quickly be affected as health costs outpaced inflation.

This is “a major concern of the entire labor movement,” Loveless said. “We’re very focused on it and working with various senators to increase the threshold and change the form of indexation.”

Higher Taxes, Pass It On

Robert Laszewski, president of Health Policy & Strategy Associates, said the Baucus tax on health care policies, in effect, “appoints the insurance industry to the IRS,” since the tax would merely be shifted onto customers in the form of higher premiums.

As that becomes widely known, the excise tax may lose its appeal.

But it would raise about $150 billion over 10 years, says Daniel Clifton, head of policy research at Strategas Research Partners.

Clifton notes that the tax would raise more money over time due to the inflation indexing. That could be key, since any health bill passed via reconciliation would have to be deficit-neutral in later years.

But Clifton continues to expect Congress to shrink the cost of reform to $800 billion “to make it more politically palatable.”

In addition to the excise tax on insurance policies, the Baucus plan also slaps a tax on insurers equal to $6 billion a year, which also would be passed to customers, Laszewski said. Drugmakers would face a $2.3 billion annual tax hike, medical device makers $4 billion, clinical labs $750 million.

Obama’s new financing plan isn’t the only concern of liberals. They’re also unhappy about his sub-$1-trillion price tag.

“I’m worried about a federal law that requires people to buy health insurance,” said Roger Hickey, co-director of the union-friendly Campaign for America’s Future. “Democrats need to ensure that there are adequate subsidies so that people can actually afford coverage.”

Without generous subsidies, he sees potential for a “middle-class backlash.”

But increasing subsidies would raise the overall price tag, exacerbating deficit and tax concerns.


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