Schoolteacher Kinzi Blair makes only $46,000 a year, but she has what many would consider a “Cadillac” health plan, now targeted for a big tax increase by health reformers.
She has $10 copays and no deductible. She gets generic prescription drugs for $10. Her plan covers mental health counseling, organ transplants, acupuncture. It covers speech therapy for preschoolers and in vitro fertilization.
Sound pretty good? It surely must to millions of Americans who pay high deductibles, hundreds of dollars for prescription drugs or have no insurance at all. Blair’s circumstance illustrates the debate over taxes and fairness when it comes to health reform.
“For me, it’s security,” Blair said. “I’m thankful I’m in a job where there is health insurance.”
Taxing plans like hers is unfair, said Blair, a kindergarten teacher in San Jose, Calif. Like 57 percent of Americans surveyed in a recent Associated Press poll, she favors a new income tax on wealthy Americans, which the House would impose in its bill to pay for expanding insurance coverage to millions.
But the Senate takes a different approach, including a tax on the health insurance of people like Blair. The Senate plan would also increase the Medicare payroll tax for high-income Americans and tax elective cosmetic surgery.
The tax on high-dollar health plans would hit only a few very wealthy Americans and many more in the middle class, experts agree. But it also might bring down health care costs by discouraging companies from offering coverage with so many benefits.
Whatever method is chosen to pay for health reform, Congress and President Barack Obama must convince Americans it’s fair. When it comes to taxes, Americans are hard to convince.
The Senate Democrats’ bill, unveiled last week, would impose a 40 percent tax on insurance premiums above $8,500 for an individual and $23,000 for a family. Those thresholds represent the total paid by both employer and employee.
Blair’s premiums cost $11,000, so her insurance company would be taxed 40 percent of the premium that exceeds $8,500 – a total tax of $1,000. Tax analysts for Congress say the tax would be passed on to consumers, in Blair’s case raising her annual premiums by $1,000. Or perhaps her benefits would be cut instead and she’d have a higher deductible and higher copays.
The Senate bill also would increase the Medicare payroll tax to 1.95 percent on income over $200,000 a year for individuals and $250,000 for couples.
The idea is that taxing high-cost health plans would discourage unnecessary health spending and pay for reform out of the health care system itself.
Blair’s health plan would be taxed under the Cadillac tax proposal. Here’s how her plan stacks up with an average one:
Blair’s annual premium (paid entirely by her employer): $11,000.
Average U.S. premium for employer-sponsored individual plans (usually split between worker and employer): $4,824.
Blair’s annual deductible: $0.
Average U.S. deductible for HMO plans: $699.
Blair’s office visit copay: $10.
Average U.S. copay: $20.
The numbers cited above for employer-sponsored plans don’t reflect people who buy their own health insurance. They usually buy plans with high deductibles, around $2,000, and low monthly premiums – that’s the only way many people whose employers don’t provide health benefits can afford insurance at all.
Tax-exempt health insurance is an accident of history. During World War II, the government froze wages, so employers lured workers with health benefits. Employers’ contributions were made tax exempt. Congress later made sure the tax exemption became law.
The system has led to “bloated” health benefits for some with coverage for “in vitro fertilization, marriage counseling and acupuncture,” said economist John Goodman, of the National Center for Policy Analysis. The Dallas-based conservative think tank favors private solutions over government involvement.
Taxing wealthy Americans to pay for health care – as the House bill would do – is bad for the economy, Goodman said, because it would take money out of the system that could be used to invest in growing businesses.
Goodman doesn’t like the Senate’s proposed tax, either. He’d rather give everyone the same lump sum tax credit for core health insurance and let people use their taxed income to buy more insurance if they chose.
One of the arguments for the Cadillac tax is that companies would spend their money to pay higher wages instead of providing rich benefits. Or so the thinking goes.
“The notion that there will be a corresponding increase in wages? You walk into a teachers’ lounge or a break room in a factory and say that, you get laughed out of there,” said Rep. Joe Courtney, D-Conn.
The House bill includes a 5.4 percent tax on individuals making more than $500,000 and families making more than $1 million. Courtney said that’s the fair way to pay for reform. “This is a slice of American society that has gotten a very good ride over the past 10 years,” Courtney said.
Losers under the Cadillac tax would include small businesses and companies with older workers, said Paul Fronstin, director of health research for the nonpartisan Employee Benefit Research Institute. Small businesses lack purchasing power and older workers drive up the cost of health premiums.
But the tax would raise revenue, Fronstin said – “and it has to come from someplace if you want to pay for health reform.”
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