Senate, House Split Over Taxes To Pay For Health Overhaul

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A health care overhaul that would expand health insurance coverage to millions isn't free, and in addition to proposed cuts, bills would raise revenue with taxes and fees. "The typical family would be spared higher taxes from the House Democratic plan to overhaul health care, and their low-income neighbors could come out ahead," the Associated Press/Boston Globe reports. "Their wealthy counterparts, however, face big tax increases that could eventually hit future generations of taxpayers who are less wealthy." The House bill is largely funded by a 5.4 percent income tax levied on people earning over $500,000 ($1 million for couples). The threshold for the tax would not rise with inflation, so as earnings increase, more and more people would begin to pay the tax, which would only capture 0.3 percent of Americans from the get-go (Ohlemacher, 11/2).

The House bill meanwhile lacks a tax on so-called "Cadillac" health insurance plans, featured in the Senate Finance Committee's version of the legislation, the Milwaukee Journal Sentinel reports. "Economists across the political spectrum say that taxing the most expensive health insurance plans would begin to address that discrepancy" - between people who get insurance through their employer and those who buy it independently - "and help slow the rise in health care spending." The Senate's proposed 40 percent tax on family plans that cost more than $21,000 ($5,000 for individuals) would raise $201 billion to pay for reform, around a quarter of the total cost. But, it is opposed by insurers, unions and others (Boulton, 11/1).

There is also opposition to a proposal in the Finance Committee, a possible $2,500 cap on tax-free health care flexible spending accounts, which are not capped by the government now. The Associated Press/Boston Globe reports: "Those tax-free spending accounts that you and your co-workers use to help pay for dental work, insurance copayments or over-the-counter drugs face a hit under the health overhaul bills in Congress -- unless a coalition that includes a powerful union, insurers and others can stop it."

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.