Wednesday, October 14, 2009

Back to the insurance tax issue

Watch the House-Senate reconciliation process closely after the Senate acts and the health care bills move to conference committee. As I mentioned weeks ago, the scope of the so-called "Cadillac" tax on insurance premiums will be a key issue.

Why? Because many insurance plans adopted as part of collective bargaining agreements would be covered by the Senate-proposed tax. There will be no such provision in the House bill.

As reported by the Commonwealth Fund, members of the House are already gearing up on this issue.

It would be a odd policy choice, indeed, if the Democratic majority gives a special exemption to union health plans while taxing non-union benefits.

A more democratic approach and one that takes advantage of the existing progressivity of the US tax system would be to eliminate or scale back the current tax exemption for all employer sponsored insurance plans. Higher income taxpayers (whether union members or not) with higher marginal tax rates would pay proportionately more under that kind of proposal.

But I predict that you will not see a real public debate on this issue. It will be decided in the closed door sessions of the conference committee and placed before both houses as an understated component of the final bill. It will be a bargaining chip that the House uses in returning for giving up the public option insurance plan. The Obama administration, which feels it owes its existence to major financial and organizational support from the SEIU and other unions but has been unable to deliver on explicit pro-labor bills, will be quietly lobbying in this manner.

5 comments:

Anonymous said...

Oh, my; could it be that exposure to the Italians made you cynical about government??! (: (KIDDING)

nonlocal

Anonymous said...

Paul - You make a good point about the political games going on to protect the union healthcare contracts. For the most part, unions have been able to negotiate very good healthcare benefits for their members so it it is amazing to me that they are out there on the front lines campaigning for healthcare "reform". They are not going to get much better than they already have and they could very easily end up with much worse if their contracts are not politically protected. It makes you wonder what the union leaders have been promised by Obama and the Democrats.

Anonymous said...

What range of money we are talking about in terms of tax revenue? You probably have a better handle on that than I do but I would be surprised if it is very significant compared to the overall cost of "health reform".

Where I thought you were going with this line of thinking was to discuss the financing side of this issue and the policy implications of various financing mechanisms. Unfortunately it took a turn to the political side and your opinion "who owes who" from the election. BTW your idea about a progressive tax on health benefits has merits and is worth debate.

Adriennelc said...

Just read your quote in WSJ Op-Ed today! Nice to see some truth being spread!

-Adrienne Colburn

Paul Levy said...

Anon 4:00,

We need to figure out how to raise somewhere in the range of $800 billion. Elimination of the entire current tax benefit associated with employer-sponsored insurance would raise over $200 billion per year.

I'm not sure why you think it unfortunate that my comment related to politics. Politics is a big part of the health care debate, and it is perfectly reasonable to comment on it.