Health-care tax continues to raise questions!

January 13, 2010

As Congress gets closer to imposing a new tax on high-cost health insurance plans, questions are still being raised about who will be hit the hardest and whether or not the tax will limit health-care spending as much as proponents say.

The House legislation proposed would implement an income tax surcharge on families earning more than $1 million. Some skeptics of the tax believe more consideration should be given to the House proposal but centrist Senate Democrats are opposed to the surcharge. The White House and many health-care economists have endorsed the Senate legislation, making it fair to assume this form of taxation will be the one on the final reform bill.

Alec MacGillis from the Washington Post gives a brief description of the Senate proposal,

“The Senate health-care legislation includes a 40 percent excise tax on insurance plans worth more than $23,000 per year for a family of four. When the legislation would go into effect in 2014, only a small fraction of all plans would be taxed, but more would be captured over time: roughly a quarter by 2019, collecting about $150 billion over 10 years.”

Supporters believe health care spending will be reduced due to employers and employees shifting to less-generous plans to avoid the tax. In theory, this would make patients more sensitive to costs, slowing the growth of health-care spending. Furthermore, the savings employers would receive would go toward higher wages.

When talk first began about taxation, labor unions were cast as the main opposition because many union plans would be taxed under this legislation. Recently, health analysts questioned the assumption that the tax would only target the most lavish insurance packages. After some research, analysts writing in the journal Health Affairs, found that less-generous plans may also be taxed. The reason for this is due to high costs for plans for reasons other then the generosity of the benefits. Reasons such as, location or type of industry.

Former labor secretary Robert Reich had this to say on the topic,

“It makes far more sense on policy and political grounds to tax the top 1 percent rather than sweep in so many people that are paying more for health care, not because they are getting more health care but because they’re older or working for small businesses.”

The spotlight is being pointed at President Obama as this situation unfolds because during his campaign, Obama pledged not to raise taxes on anyone earning under $250,000. Obama also attacked Senator John McCain during his campaign in 2008 for his plan to do away with tax-free treatment of employer provided benefits. If the bill is passed, the President will be approving both of these terms, creating “great political risk for Democrats,” according to U.S. Representative Joe Courtney.

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