Obama Considers Taxing Health Benefits To Pay For Reform

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As President Obama looks for a way to pay for health care reform in the United States, key Democrats advocate taxing employer-provided health benefits, The Washington Post reports.

"Much of the money is likely to come from reining in spending on federal health programs for the elderly and the poor. Obama has proposed trimming more than $600 billion from Medicare and Medicaid by 2019 - including more than $300 billion in cuts unveiled in his Saturday radio and Internet address - which could fulfill the promise to curb the growth of federal health spending. The rest of the cash will probably come from new taxes. But Democrats are deeply divided over which taxes to raise, and the issue has become a central stumbling block in the push to enact legislation by fall."

As a means of offering alternatives to taxing the benefits of middle-class voters, something Obama vowed not to do, Obama has renewed calls to limit itemized deductions for the nation's wealthiest three million highest earners. "But many Democrats, particularly in the Senate, have balked at the idea, saying they prefer a tax that has some hope of winning Republican support. In legislation that could be unveiled as early as this week, Senate Finance Committee Chairman Max Baucus (D-Mont.) is expected to propose a new tax on the health benefits that millions of Americans currently receive tax-free through employers."

As Obama and Democrats consider the politics of such a move, the tax could be the largest boon to efforts at reform. "The tax-free treatment of employer-provided health insurance is the biggest loophole in the tax code and the second-largest federal health-care cost, after Medicare. Taxing half of all employer-sponsored premiums would generate nearly $1.2 trillion over the next decade, according to the nonpartisan Joint Committee on Taxation, compared with about $270 billion for new limits on itemized deductions for the rich. Advocates say taxing benefits also makes good economic sense. The rewards of the current tax break fall heavily to the wealthy, and there is no similar tax break for workers who must buy insurance on their own. Many economists also dislike it because it encourages workers to take compensation in the form of health care instead of higher wages, pushing resources into the health system and increasing costs" (Montgomery and Connolly, 6/15).

But Sen. Chris Dodd, D-Conn., said people don't need a new tax on health care benefits because they're already struggling financially. Dodd appeared with Senate Finance Committee Ranking Member Sen. Chuck Grassley, R-Iowa, on "Fox News Sunday," The Associated Press reports (6/14).

Dodd's Health, Education, Labor and Pensions Committee in the Senate also faces more than 100 amendments from Republicans on their version of the health reform bill, Roll Call reports: "While details of the amendments are unclear, Republicans oppose including a public option, arguing that it would undercut the private market. They also contend that requiring employers to offer health insurance could lead many businesses to drop coverage altogether. … Republicans have estimated that the bill could cost upward of $2 trillion over the next decade. Dodd responded that scoring has not yet been completed. 'You can't get scoring unless you have the product,' he said" (Langel, 6/15).

Sen. Dick Durbin, D-Ill., said Americans already pay a hidden $1,000 surcharge in premiums to cover the uninsured who get treatment in emergency rooms. Durbin made his comments on CBS' "Face the Nation," The Associated Press reports in a separate story (6/14).

This information was reprinted from kaiserhealthnews.org with kind permission from the Henry J. Kaiser Family Foundation. You can view the entire Kaiser Daily Health Policy Report, search the archives and sign up for email delivery at kaiserhealthnews.org.

© Henry J. Kaiser Family Foundation. All rights reserved.