Who’d Get Hit by an Excise Tax on High-Cost Insurance?
As House and Senate leaders struggle to design their health reform bills, they remain at loggerheads over how to pay for broader access to insurance. The Senate Finance Committee’s plan to tax insurance companies that sell high-cost medical policies would generate over $200 billion in revenue over the next decade. But the excise tax is hugely controversial, mostly because influential unions oppose it.
A recent Joint Committee on Taxation analysis explains why. The JCT report, outlined in a letter to Representative Joe Courtney (D-Conn.), concludes that the Finance panel measure would increase taxes by an average of about 0.5 percent in 2013. But those making between $30,000 and $75,000 would face the biggest tax hike, just under 1 percent.
The tax would become much more painful over the next decade. By 2019, the Finance Committee plan would drive up average liability by 1.2 percent. But those earning $50,000 to $75,000 would face a stiff tax increase of 2.3 percent.
Here’s why: The cost of plans subject to tax would increase at the overall inflation rate plus one percentage point. But health costs, and thus insurance premiums, rise faster than that. So, gradually, more policies would be taxed. In 2013, the tax would hit roughly 4 percent of premiums. But in 2019, 11 percent would be taxed.
But why should unions like the Communications Workers of America (the outfit that made the JCT report public) care? Isn’t the tax being imposed on insurance companies? It is, but those insurers are not likely to swallow much of the tax themselves. Instead they—and the many large employers that self-insure—would pass the levy on to their workers by increasing the price of coverage. In some cases, workers would pay the higher premiums directly. If employers picked up the higher costs, workers would pay though lower wages. Or, employees may choose less expensive plans.They may get higher wages as a result, but that would add to their taxable income. Any way you look at it, workers will pay at least some of this tax. And their unions are not happy.
The CWA did a little math and concluded that the Finance Committee plan would boost taxes by an average of about $900 in 2013, rising to $1,300 by 2019. For those in the $50,000 to $75,000 range, that tax hike would rise from about $800 to $1,200. However, by CWA’s calculations, only about 10 percent of taxpayers in that income range would pay the excise tax at all in 2013, rising to about 24 percent by 2019.
But keep in mind that these averages can be very misleading. Today, many working-class people have no insurance, either because they can't afford it, are uninsurable because of pre-existing health issues, or because their employers don't offer it. Thanks to other provisions of the reform bills, many of those earning less than $75,000 would enjoy new government subsidies that would make it possible for them to buy insurance for the first time. And low-income workers would get greater access to Medicaid. A chunk of these new subsidies, of course, will be paid by those hit by the excise tax.
So, like most other pieces of health reform, there would be winners and losers even among those earning the same money. The question for the pols: Do they want to tax those with modest incomes and generous health insurance to help those with modest incomes and no insurance?