Senate Bill Taxes Your Current Health Plan

October 14, 2009

Senate Bill Taxes Your Current Health Plan


President Obama likes to say that “if you like your current health insurance plan, you can keep it.”  This naive platitude is simply not true.

Under the plan voted out of the Senate Finance Committee and being considered by the full Senate, “your current health insurance plan” will be taxed to the point where it is no longer recognizable, or goes away entirely.

This means the president hasn’t read the Senate Finance plan or he’s misrepresenting its content.  [Or again – He is lying]

Either way, the story needs to be set straight.

It’s not surprising that Obama would want to assure people that his plan will let them keep their existing coverage.

After all, a recent USA Today/Gallup poll found that 85% of Americans with health insurance were satisfied with the quality of medical care they receive, and with their health care costs. [85% satisfied with what we have now]

For this silent majority of Americans, an overhaul means destabilizing their health care arrangements.

This is especially true if the long arm of the IRS will be the agent changing their family’s plan.

Chief Justice John Marshall famously observed that “the power to tax is the power to destroy.” That’s certainly true when it comes to the Senate health care bill, which will use the IRS to change or take away your current health insurance plan.

The most significant tax increase on millions of health insurance plans is the Cadillac excise tax.

If a health insurance plan is offered in a high-cost state and/or provides comprehensive benefits to a usually older work force, the premiums can get pretty high.

Finance Committee Chairman Max Baucus wants to impose a price-control cap on these high-end plans, but couldn’t be that direct about it.

Instead, he used his jurisdictional leverage to propose a 40% excise tax on these plans, to the extent they cost more than $21,000 for a family plan or $8,000 for a single plan.

This excise tax would be paid by the insurance companies, which would have little choice except to pass along the cost to customers.

Imagine for a moment that you are a 54-year-old employee of a large company in a higher-cost state.

You and your wife’s health isn’t what it used to be and, of course, the kids need health insurance too. Even though it’s a bit more expensive, you decide to sign up for the high-end plan at work.

This is your current health insurance plan.

The Obama-Baucus bill wants to tax it at a 40% rate. How on earth would it remain unchanged, as the president has claimed?

It gets worse.

Because no company will want to buy a plan that crosses the $21,000 Cadillac line, these plans will be phased out or simply eliminated. An employee may not have any choice in the matter. His plan might not be available at the next open season.

Sadly, that’s not the only tax increase on your current health insurance plan. If you’re one of the 25 million Americans with a health flexible spending account (FSA) at work, you’ll suddenly find these currently unlimited accounts capped at $2,500. People use health FSAs to pay for co-pays, deductibles, nonprescription medications, durable medical equipment and costs associated with special-needs children.

This tax hike directly changes health care plans on day one.  A related provision would deny FSA owners the ability to pay for over-the-counter medicine with pretax FSA dollars.

If you’re one of the 7 million Americans with a health savings account (HSA), the extra tax penalty for nonhealth withdrawals goes up from 10% to 20%.  It’s hard to see how these radical tax-hike changes to pretax health accounts square with Obama’s blithe assurances about keeping your current health insurance plan.

There’s more. Three tax hikes in the bill are simply cash grabs from victimized industries — health insurance companies, pharmaceutical companies and medical device firms. Because many Americans ultimately receive their medicine and health equipment by way of their health insurance plan, it’s likely the burden of paying these new taxes will also fall on your current health insurance plan.

Looking at all these tax increases in the Obama-Baucus plan — and these are simply the ones that fall on your current health insurance plan, not all the other many tax hikes included in the bill — Obama’s claim can’t be true.

If “your current health insurance plan” is going to pay a 40% excise tax, going to see its FSA capped and/or going to face an industry excise tax, it can’t stay the same.

Make no mistake about it — Obama-Baucus will use the tax code to take away your current health insurance plan.

• Norquist is president of Americans for Tax Reform.


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