America’s Workers Oppose Taxing Health Care Benefits

by Mike Hall, Jul 8, 2009

One of the most troubling health care reform proposals—taxing health care benefits—that had gained some traction in recent weeks appears to be slipping. Grassroots health care activists, President Obama and leading congressional Democrats have helped shed the light on, and slow the momentum of, this unfair tax that could boost working families’ tax liability by as much as 28 percent, according to the Commonwealth Fund.

Yesterday, the Capitol Hill newspaper Roll Call reported that Senate Majority Leader Harry Reid (D-Nev.) told Sen. Max Baucus (D- Mont.), chairman of the Senate Finance Committee, that any health care bill that included a tax on health care benefits and failed to include a strong public health insurance plan option would lose significant Democratic support. The paper said Reid told Baucus to drop

a proposal to tax health benefits and stop chasing Republican votes on a massive health care reform bill.

But conservative groups, most Republican leaders and others are expected to continue to push for the tax as health care reform legislation advances.

The Finance Committee still is developing its version of health care reform legislation. The Senate Health, Education, Labor and Pensions (HELP) Committee is putting the final touches on its package that includes a strong public plan option, shared responsibility with an employer “pay or play” provision, insurance market reforms to help stop private insurance industry abuses, cost containment and other provisions.

In the House, three committees—Education and Labor, Energy and Commerce, and Ways and Means—have developed the health care reform roadmap, one that AFL-CIO President John Sweeney says

encourages choice, competition and opportunity for all Americans to choose the health care that works for them.

Obama calls the Senate HELP Committee draft

legislation that lowers costs, protects the choice of doctors and plans and assures quality and affordable health care for Americans.

Neither the House nor the HELP Committee bill includes the health care benefits tax, but health care tax proponents will keep up the drumbeat for the tax. Currently, the health care benefits workers receive through an employer are not taxable. Some 160 million people have health care benefits tied to the workplace.

The money spent on providing health care coverage is tax-deductible to the employer and the employee is not taxed on it. Workers who get their health care coverage through employment, and the employers who provide it, already have seen years of health care costs climbing and their coverage shrinking through higher premiums, bigger co-pays, larger deductibles and more exclusions in coverage.

A study by the Commonwealth Fund found that workers with employer-provided benefits earning between $40,000 and $50,000 a year would see their tax liability increase by an average of 28 percent, while those earning between $50,000 and $75,000 would see an average increase of 20 percent. But people making more than $200,000 a year would only see an average increase in their tax liability of just one-tenth of 1 percent.

At a July 1 town hall meeting in Virginia, Obama told the crowd:

If you’ve got health insurance right now, you shouldn’t see your costs go up as part of health care reform.

In March, a study by the Economic Policy Institute (EPI) showed a health care benefits tax would disproportionately hit workers in small firms and firms with older workers and retirees because insurance companies regularly charge higher rates for coverage of those workers.

Some of the pro-health care tax advocates say they would target only so-called high-cost “Cadillac” health care plans. The plans that supposedly allow workers Hollywood-like cosmetic surgeries and health spa stays. Those plans have become the mythical “welfare Cadillac” of health care reform.

Longtime business and health journalist Merrill Goozner writes on his blog Gooznews on Health:

There are very few plans out there whose high prices are determined by the generosity of their benefits. The vast majority of costs in high price plans are driven by the other two factors: they are either in high-cost areas or they cover costly patients, or both.

Any final health care reform plan that includes a health care benefits tax will certainly lose public support. A 2009 national survey by Lake Research Partners found that 80 percent of likely voters are opposed to taxing health care benefits. That was shown to be true in last year’s presidential election where many voters said Sen. John McCain’s proposal to tax health care benefits was a major deciding factor in their votes for Obama.

Recently on the Bill Press Show, Sheet Metal Workers (SMWIA) President Michael J. Sullivan said:

Any bill that taxes health care benefits is dead on arrival. That is a promise and where I come from a promise made is a promise kept….We are already subsidizing employers who don’t provide health care benefits and are being punished because we’ve done the right thing, our employers have done the right thing and our members have sacrificed wage increases for their health care benefits. So why are we the ones who are being penalized?

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