Policy-ish

Show Me The (Tax) Money

butler holds tray of money

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Many Republicans and Democrats want to tax your health benefits to help pay for a health overhaul, but not everyone's sold on the plan, namely, the President.

And what does taxing your health benefits mean, exactly? It means changing the tax code, which currently makes employer-sponsored health care tax free for employees.

End it, says Douglas Holtz-Eakin, former health care guru to former Republican presidential candidate Sen. John McCain.

The current tax treatment of health benefits is unfair because it goes only to those who receive their insurance from their employer, not those who purchase their own health insurance, Holtz-Eakin says. He adds:

"Moreover, the subsidy is of greater value to the more affluent (who have a higher tax rate and thus avoid more taxes) than to the less affluent. It also distorts decisions about health insurance and, by implication, health care."

Holtz-Eakin suggests replacing the tax-free health benefit law with a phased-in credit of $4,500 for those who have private health insurance, plus the very non-conventionally-Republican idea of expanding Medicaid and federal subsidies to states who address a significant portion of their uninsured.

The Washington Post Editorial Page today largely agrees, adding:

Furthermore, the exclusion is counterproductive: tax-free health benefits encourage employers to provide more compensation in the form of health insurance and encourage insured individuals to use more health care than they would if they had to pay with after-tax dollars. The result is higher health-care costs.

But labor groups and President Obama have been chilly to the idea.

No way we should tax employees' health care, says Health Care Voices, an advocacy group for a centralized, government-run health plan that covers all.

"Sure, there are a few CEOs who get extra health benefits along with their stock options and company jets. But those aren't the only ones who'd have to pay if benefits were taxed..."

A recent study in Tax Notes by Elise Gould of the Economic Policy Institute and Alexandra Minicozzi at the Congressional Budget Office urges caution.

It says that the companies and workers with the highest premiums who are likely to be the first targets of a new tax are actually small companies and employers with an older workforce — not necessarily the rich.

There's also the matter of whether the public plan President Obama has proposed to compete with private health plans is for real or just a political torture device, and how many new lives would actually be covered by any new policies — all yet to be worked out in the debate.

Yesterday the Senate Finance Committee released a bipartisan package of financing options for a health overhaul. None of them are without pain, notes Ezra Klein, the newly installed "voice" on economic and domestic policy at the Post:

"This is it. This is where health reform lives or dies. For all the talk of a public plan, all the talk of the individual mandate, the bottom line question in health care reform is simple enough: Can you pay for it?"

And as the New Republic's health blogger Jonathan Cohn notes, the key is to make sure what ever reform is instituted actually "makes progress towards controlling costs."

If Congress can agree on a rational revenue stream for a health overhaul, there just might be a bill signing this year.

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