Imagine you are a successful business owner confronting the House Democrats’ proposed tax rate hike. Your first question: How do I shelter as much of my income as possible? Will one answer be to buy the richest, most generous health insurance policy you can find? It only makes sense. Why take cash compensation that could face a top rate of more than 45 percent when you could easily get more tax-free health insurance? Forget Cadillac plans. Now we’re talking Lamborghini coverage.    more »

Now we know how many American taxpayers will be asked to pay for health reform under the new tax rate structure being designed by House Democrats: about 2 million. That would be a bit more than 1 percent of all taxpayers. They’d be asked to pay an additional $540 billion in taxes over the next 10 years, while those making less than $350,000 would be asked to contribute approximately nothing. Seems fair to me. According to the draft House bill, starting in 2011 those making more than $1 million would pay a surcharge of 5.4 percent. Add that to President Obama’s plan to restore the pre-Bush top rate of 39.6 percent and the new maximum marginal rate would be an even 45 percent. You can also add a couple of extra percentage points thanks to Obama’s plan to restore the pre-Bush limits on personal exemptions (PEP) and itemized deductions (Pease).    more »

A few thoughts on the House Democrats’ still-evolving plan to pay for close to half of health reform by raising marginal rates on the highest earning taxpayers: *By allowing the Bush tax cuts to expire, restoring the phase-outs of the personal exemption (PEP) and itemized deductions (Pease), and now by proposing a ‘surcharge” of 2 percent or more, Democrats would be boosting the top individual tax rate from the Bush-era 35 percent to nearly 45 percent, ever-closer to the 50 percent top rate of 1985.    more »

The American public is deeply divided over whether to raise taxes to pay for health reform. A fascinating Kaiser Family Foundation review of recent survey data finds that in five polls taken over the past four months, about half of those questioned said they’d be willing to pay higher taxes as the price of reform. However, the amount of tax they are willing to pay appears to be low, they’d much prefer someone else pay, and they don’t like the idea of taxing employer-sponsored insurance one bit. Most striking, a dispiriting 60 percent think the system can be fixed without spending any more money at all—an outcome that no health economist I know thinks is remotely possible.    more »

What if we helped pay for health reform by raising the floor on deductible medical expenses from 7.5 percent of adjusted gross income to 10 percent? That, at least, is an idea leaked to The Wall Street Journal earlier this week by the Senate Finance Committee The move, which TPC figures would raise about $23 billon over 10 years--about 2 percent of the likely cost of health reform--would lift the floor that was set back in 1986. To get a sense of what it would mean, I asked TPC’s Jeff Rohaly and Rachel Johnson to run some quick numbers.    more »

Note to critics of the public plan option for health insurance: This debate is over. You lost. In 2007, more than 45 percent of all medical costs in the U.S. were paid by government, vastly more than the one-third funded by private insurance. Many Americans already have access to public coverage. There is Medicare for those over 65, Medicaid for the poor, SCHIP for kids, coverage for the active military, and for many veterans. Together, the share of medical spending paid by government has grown from one-third in 1970 to nearly half today, according to the Current Population Survey. If your definition of “public plan” includes insurance available through highly-regulated private carriers to federal, state, and local employees, the numbers are even bigger. And, of course, there is the quarter-trillion dollar government tax subsidy for health insurance.    more »

Senate Finance Committee Chairman Max Baucus (D-MT) is floating the following trial balloon: Congress would fund part of health reform with a cap on the tax exclusion of employer-sponsored health insurance but only at a level “significantly above” the cost of the standard plan offered to federal employees. The measure would also exclude policies bargained under current union contracts. In a bit of unsenatorial understatement, Baucus told reporters on Tuesday that this version of the cap “wouldn’t affect very many people.” Or, he might have added, raise very much money.    more »

Until now, unions have been among the strongest critics of paying for health reform by limiting the tax exclusion for employer sponsored insurance. But on Monday, a well-connected labor lobbyist told me a deal could be done. “It all depends,” he said, “on what the cap looks like.” Remarkably, in just a few weeks, lawmakers seem to have moved beyond the argument over whether the exclusion should be capped. Now, they are debating how. It is not easy. There are caps based on employee income, the value of the insurance, or both. There are caps tied to the actuarial value of coverage, or linked to geography. Then, there is the issue about how to index a cap.    more »

As promised, TPC has crunched some numbers for the health reform plan introduced by congressional Republicans last week. They are pretty ugly, and an indication of just how hard it is to confront the taxation of medical care. The Patient’s Choice Act, sponsored by Representative Paul Ryan (R-WI), Senator Tom Coburn (R-OK) and others, takes some remarkable steps toward bipartisanship by embracing regional purchasing pools. It also includes some very Republican ideas, such as giving low-income families $5,000 to buy their way out of Medicaid.    more »

Yesterday, conservative Republicans rolled out their health reform plan. The Patient’s Choice Act is an interesting mix of Massachusetts-like exchanges and other reforms intended to boost the individual insurance market. But, no surprise, its centerpiece is a giant tax cut.    more »

Describing his financing options for health reform yesterday, Senate Finance Committee Chairman Max Baucus (D-MT) delivered two messages: A) Eliminating the tax exclusion for employer-sponsored health care is off the table and B) He would still like to find a way to curb this hugely expensive and inefficient subsidy. Baucus' bipartisan alternatives for limiting the exclusion cover the proverbial waterfront. Congress could cap the subsidy based on the value of the insurance plan, the income of the policyholder, or both. It could index the cap based on health care inflation, the consumer price index, or growth in GDP. It could “grandfather” existing union-negotiated plans, or not. What Baucus seems to be saying is: I’ll do whatever it takes to reduce the value of the exclusion, even if it is only a small step toward eventual repeal.    more »

Medicare’s Part D drug benefit is going to cost taxpayers a lot of money. A really, really lot of money. You can find the story deep in the bowels of the Medicare Trustees report that was released earlier this week. It is a nice little case study of how a well-intentioned government program can add tens of billions of dollars annually to the federal deficit. And it is a cautionary tale of how hard it will be to bring medical costs under control, despite the promises of the Obama Administration and industry lobbyists.    more »

Today’s letter from key health industry players to President Obama promising to “do our part” to control medical care cost growth is a big deal. It sends a powerful message that “Harry and Louise,” the fictional couple who became the symbol of the medical establishment’s opposition to Clinton-era health reform, have retired to a condo in Florida.    more »

There are already signs that a key tax element of President Obama’s budget--his proposal to limit to 28 percent the value of all tax deductions—may not survive on Capitol Hill. And if it is allowed to die, Congress may find itself staring squarely at another hard-to swallow tax hike—trimming the tax exclusion for employer-sponsored insurance. Key Republicans have strongly objected to the curb on deductions. Powerful Democrats, including Finance Committee chairman Max Baucus (D-Mt), are less than enthusiastic. Charities that fear they will lose contributions are gearing up for a big fight, even though TPC estimates that gifts would decline by only about 2 percent. And in the face of this criticism the Administration has signaled that it may not fight very hard to save the proposal. "We recognize there are other ways to do this," Treasury Secretary Tim Geithner told the Finance panel yesterday.    more »

To help pay for health reform, President Obama’s wants to limit deductions for high income taxpayers. He’s on to something, but I’ve got some questions about what he’s doing. This tax increase, sure to be politically contentious, would kick in starting in 2011 and raise about $318 billion over 10 years. That sounds like a lot, but in fact it would only fund about 20 percent of the total cost of the health plan Obama outlined in his presidential campaign. TPC estimated the price of that plan at $1.6 trillion over 10 years.    more »