Labor & Employment Law

Taxing Benefits: The Wrong Way to Pay for Health Care

By Seth Michaels

One of the principles that must be at the heart of health care reform is making sure it’s paid for fairly. Unfortunately, some members of Congress are trying to fund it in the wrong way?by taxing working families’ health benefits.

The Senate Finance Committee’s bill, unlike the bills passed by committees in the U.S. House, relies on an excise tax on health coverage, starting in 2013, to fund health reform. That’s a short-sighted policy that could hurt millions of people that health care reform is supposed to help.

A new report by the Economic Policy Institute (EPI) shows that, under the current Senate Finance Committee proposal, the excise tax would hit about one-third of health insurance plans within the next decade. This could cause millions of middle-class families to suffer a tax increase or to get their benefits pared back, the report says.

To the extent that workers choose less expensive health plans for themselves and their families to avoid the excise tax, they will be faced with higher out-of-pocket costs. All else equal, lower premiums translate into less comprehensive coverage. Less comprehensive coverage often takes the form of higher deductibles, increased co-pays, higher out-of-pocket maximums, or other increased cost-sharing.

The EPI finding echoes findings in an updated report by the Communications Workers of America (CWA), which suggests an excise tax would have a tough impact on middle-class families. The CWA report cites estimates from the congressional Joint Committee on Taxation that 31 million taxpayers will be affected by 2019, paying an average of $1,318 in higher taxes. Because of the steep rise in the cost of a health care plan, the excise tax would hit more and more families over the coming years. The impact on older workers and workers living in high-cost areas or working dangerous jobs could be even more severe.

There are better ways to pay for health care reform. The bills proposed in the U.S. House, for instance, pay for it with a combination of employer responsibility, a surtax on the very wealthy and the significant savings realized from having a strong public health insurance option.

Since the goal of health care reform is to lower costs for families and guarantee access to quality care, an excise tax that imposes a financial burden on working families just doesn’t make sense. In fact, Sen. John McCain (R) proposed a tax on health care benefits in the 2008 election?and lost. America’s working families have made their feelings clear: they don’t want to pay for health care with a tax on their benefits.

Full post as published by AFL-CIO NOW BLOG on October 23, 2009 (boomark / email).