May 14th, 2009

Reports Kaiser Network News:

The Senate Finance Committee on Tuesday heard arguments for taxing employer-sponsored health care benefits as a means for funding a comprehensive health care overhaul, the Wall Street Journal reports. Neither employers nor employees currently pay taxes on health benefits (Adamy, Wall Street Journal, 5/13). The Joint Committee on Taxation estimated that the tax exemption represented $246 billion in lost federal tax revenue in 2007 (Armstrong [1], CQ Today, 5/12). According to the Lewin Group, the exemption will represent a loss of $297 billion in 2010 (Wall Street Journal, 5/13).

During the campaign, President Obama opposed taxing employer-sponsored health care benefits, a pillar of Sen. John McCain’s (R-Ariz.) health care plan. White House aides say Obama is open to suggestions from Congress (Alonso-Zaldivar, AP/Seattle Post-Intelligencer, 5/13).

Many health policy experts at the Finance Committee roundtable told the senators that adjusting the tax exemption is necessary in order to pay for Obama’s proposed health care overhaul.

…

Committee Chair Max Baucus (D-Mont.) said, “We are not going to eliminate that exclusion,” but “we should look at ways to modify the current tax exclusion so that it provides the right incentives” (Armstrong [1], CQ Today, 5/12). He added that Congress could consider placing a cap on the amount of benefits that can be exempt and could place an income limit for the exemption (Fritze, USA Today, 5/13).

John Sheils, senior vice president of the Lewin Group, said capping the tax exemption at the average that employees pay for health benefits would raise $700 billion over a decade and encourage employees to purchase more efficient insurance coverage (CongressDaily, 5/12). Greenstein said that a combination of capping the tax exclusion, requiring U.S. residents to be covered and requiring employers to contribute to the cost of coverage would make the system of employer-provided health care stronger and make health care costs rise more slowly (Armstrong [1], CQ Today, 5/12).

Gerald Shea of the AFL-CIO said that limiting the tax exemption is “a step in the wrong direction” because it would hurt employees who negotiated for better health care coverage rather than better wages (USA Today, 5/13). Shea added that the idea of taxing employer-sponsored insurance could “disrupt the primary source of health coverage and financing for most Americans” (Budoff Brown, Politico, 5/13).

Read more, including some alternative taxes that are being considered, at Kaiser.