A few days ago, I wrote a diary, asking Will employer-provided healthcare benefits be taxed? http://www.dailykos.com/...
I noted Ezra Klein's first reporting in his blog on Feb 22, 2009 that the Senate was considering repealing the employer tax exclusion of health benefits and that the Administration supported the idea but preferred that the Senate take the lead in proposing the idea to the public.
http://www.prospect.org/...
The New York Times validates Ezra Klein's reporting on this issue over the past few weeks:
Now that Mr. Obama has begun the health debate, several advisers say that while he will not propose changing the tax-free status of employee health benefits, neither will he oppose it if Congress does so.
http://www.nytimes.com/...
The New York Times notes that a few Obama advisors have publicly supported taxing health care benefits:
Mr. Orszag, an economist who has served as director of the Congressional Budget Office, has written favorably of taxing some employer-provided health benefits and using the revenue savings for other health-related incentives. So has another Obama adviser, Jason Furman, the deputy director of the White House National Economic Council.
They, like other proponents, cite evidence that tax-free benefits encourage what Mr. McCain called "gold-plated" policies, resulting in inefficient and costly demands for health care and pressure on employers to hold down workers’ pay as insurance expenses rise. And, they say, the policy discriminates against those — many of whom are low-income workers — who do not have employer-provided coverage.
In Congressional hearings, different Obama administration officials have said that the White House is open to repealing the tax exclusion of health care benefits:
At a recent Congressional hearing, Senator Ron Wyden, an Oregon Democrat whose own health plan would make benefits taxable, asked Peter R. Orszag, the president’s budget director, about the issue. Mr. Orszag replied that it "most firmly should remain on the table."
--
When Senator Max Baucus, Democrat of Montana, advocated taxing benefits at a recent hearing of the Finance Committee, which he leads, Treasury Secretary Timothy F. Geithner assured him that the administration was open to all ideas from Congress. Mr. Geithner did, however, allude to the position that Mr. Obama had taken as a candidate.
Again, the White House isn't going to take the lead in advocating the repeal of the tax exclusion on health care benefits, but they will accept the idea if the Senate proposes it.
Now that this idea of taxing health care benefits is openly on the table, I am going to reiterate questions that I have about the proposal:
1.) Who exactly will be affected by this tax and how will it affect coverage of their current benefits?
I think I read in one of Ezra's blogs that Baucus & company were considering capping the tax exclusion above $12,500. I believe that the federal employee healthcare plan would be taxed under those circumstances. Possibly some union healthcare benefits would also be taxed. But remember not all. For instance, most SEIU members don't have healthcare benefits at all so it won't affect them. The New York Times noted that difference in the article today:
Organized labor, a pillar of the Democratic Party base, considers the benefits among the union movement’s historic achievements for the middle class. But a split could be developing between the manufacturing unions, which have negotiated rich benefit packages, and the growing service employees unions, which include many low-wage workers without generous benefits.
Who else has "cadillac" healthcare benefits? State employees?
2.) Would this imposition of the tax on healthcare benefits lead to employers deciding not to provide healthcare benefits to employees at all?
3.) How would this policy change affect retiree healthcare benefits? Many companies provide supplemental health insurance (Medigap) to their retired employees. Could this policy change affect retiree's coverage? Given their fixed income status, would policy-makers provide retirees with an additional subsidy to make up for the shortfall?
4.) How would the healthcare benefits be taxed? Would the benefits just be taxed on income, ie marginal rates or would the healthcare benefits also incur social security and medicare taxes? Could this tax proposal inadvertantly bump some people to higher marginal tax rates?
5.) Would the new policy include taxing flexible spending accounts?
Finally, this tax proposal raises the larger issue whether health care should be tied to employment. Could this idea finally lead to the delinkment of healthcare as an employer-provided benefit?
I also wonder whether the elimination of the entire tax could lead to single payer faster. Republicans like McCain promoted the tax b/c they see employer-provided healthcare as a third party payor problem. When a third party pays for the benefit of an individual that benefits from healthcare, the beneficiary does not fully recognize the huge cost of healthcare. They think that the public uses too much healthcare and will ration healthcare on their own once they get that sticker shock.
Unlike Republicans, I don't believe that people use healthcare willy-nilly. They need it. But if people realized how much individual healthcare costs on the open market, rather than their employer subsidizing it, I do think the average person would demand more changes to the healthcare system. IMHO, right now, people who are healthy and have access to healthcare through their employer for the most part don't have the urgent desire to change the system. Forcing people, especially those in their '40s and '50s onto the individual market will force lawmakers to consider the public option and even single payer more seriously. JMHO.....