The Alan Katz Health Care Reform Blog

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Posts Tagged ‘Office of Management and Budget’

Repealing PPACA’s 1099 Provisions Could Happen Soon — Maybe

Posted by Alan on April 1, 2011

Getting anything done in today’s Washington is never easy. Even when there’s widespread agreement. .

Congress has been trying to eliminate the 1099 requirements since last year. Everyone agrees that the provision is an unaffordable burden on American business. President Barack Obama supports removing it from the health care reform law. So do a majority of Democrats and Republicans in Congress. It’s not hard to see why. Today businesses file a 1099 with the Internal Revenue Service only when they pay contract workers $600 or more. The Patient Protection and Affordable Care Act expands this to all vendors and contractors providing $600 or more in goods or services. Meaning a business (non-profit or government agency) buying $600 in paper and staples per year from, say Staples, would be required to file a 1099 form. Same with paying the guy who waters the plants. Or UPS for delivering products. Or the printer, the security service, the landlord, the … well, you get the idea.

Even with what passes in the Capitol these days for near universal support, Congress has tried and failed to repeal the provision. The problem is that more thorough reporting of payments for goods and services is expected to bring roughly $20 billion into federal coffers over the next 10 years. Repeal the enhanced reporting and the money goes away.

Democrats and Republicans have differed on how to make up for these lost funds. The House approach is to increase the amount consumers will need to repay if they receive premium subsidy overpayments. (The PPACA will assist consumers purchasing coverage through exchanges set up by the health care reform law. The premium subsidies vary based on consumers’ income as reported in previous years. If their income turns out to be higher than anticipated consumers will need to repay a portion of the subsidy).

Here’s an example used by Representative Joseph Crowley as reported in the New York Times: “A family of four with an annual income of $88,000 buys a typical family insurance policy costing $13,000. The family would have to pay $8,360 in premiums and could qualify for a federal tax credit of $4,640, which the Treasury would pay directly to the insurance company. If the breadwinner receives a $250 bonus at work, the family would become ineligible for the tax credit and would have to repay the full amount, $4,640, with its income taxes.”

Democrats oppose this outcome because the overpayment of the subsidy was no fault of the consumer. As reported in the The New York Times article, they see this as a “tax increase on the middle class” claiming “honest taxpayers might find themselves owing large sums to the I.R.S.” This they consider a tax trap. Republicans in the House deny repaying money to which one is not entitled can be described as a tax increase. They also claim it’s the same offset Democrats proposed to pay for adjusting Medicare payments to doctors, according to The Hill’s On the Money blog.

The Senate has taken a different approach to paying for repeal of the 1099 provision. They want the Office of Management and Budget to recapture unused federal dollars from various governmental agencies. But it appears there may now be sufficient votes in the Senate to go along with the GOP approach. So things will happen quickly now, right? Perhaps, but maybe not.

Senator Robert Menendez wants the Senate to consider an amendment requiring Health and Human Services to determine the impact the subsidy claw-back provision in the House bill will have on the overall cost of coverage purchased in the exchange. If this amendment were to pass, the Senate version of the legislation would differ from that passed by the House. This, in turn, would require the bill to go back to the lower House delaying passage of the repeal.

Republicans, however, are expected to stand united in opposition to this amendment, effectively blocking its passage. Assuming this is the way things play out next Tuesday, the bill could wind up on President Obama’s desk sooner rather than later. The Administration, in the past, has expressed “serious concerns” about the way the House bill retrieves subsidy overpayments. A statement from the Office of Management and Budget notes “H.R. 4 could result in tax increases on certain middle-class families that incur unexpected tax liabilities, in many cases totaling thousands of dollars, notwithstanding that they followed the rules.” The statement goes on to support the Senate approach to paying for repeal of the 1099 reporting provisions in the health care reform law.

Whether President Obama signs the legislation in an act of bi-partisan compromise or vetoes it in the cause of avoiding a middle class tax cut won’t be known for sure until the bill is before him. It remains highly likely the tax reporting element of the PPACA will eventually be repealed. Whether this will happen soon remains an open question.

Posted in Barack Obama, Health Care Reform, Healthcare Reform, Patient Protection and Affordable Care Act, Politics, PPACA | Tagged: , , , | 11 Comments »

Obama Administration Showing Flexibility on Public Health Insurance Plan

Posted by Alan on June 24, 2009

President Barack Obama wants health care reform. He sincerely believes we need to fix what’s broken in the current system because it is the right thing to do and as a necessary step to get America’s economy moving forward again. He has put forward what elements he wants to see as part of comprehensive reform package, but instead of plopping a finished product in the lap of Congress (as the Clinton Administration did during their botched health care reform effort), he is asking Congress to take the lead in developing legislation (imagine that, letting legislators legislate). He and his allies have made clear they are willing to discuss almost any idea. The mantra they repeat often is that “everything is on the table.”

Almost. President Obama has also repeatedly made clear that acceptable health  care reform must adhere to three core principles. As they are described on his Organizing for Health Care web site, reform must:

  • Reduce Costs — Rising health care costs are crushing the budgets of governments, businesses, individuals and families and they must be brought under control
  • Guarantee Choice — Americans must have the freedom to keep whatever doctor and health care plan they have, or to select a new doctor or health care plan if they choose
  • Ensure Affordable Care for All — All Americans must have quality and affordable health care

Don’t misunderstand. He has clear ideas on how these principles should be achieved, but he is not insisting Congress do things his way, only that they do them.  This approach was clear in President Obama’s Tuesday press conference when he was asked about the health care reform. His response to the first question on health care reform laid out his approach to the issue.

He began by emphasizing the need for reform. “So the notion that somehow we can just keep on doing what we’re doing, and that’s OK, that’s just not true. We have a long-standing critical problem in our health care system that is pulling down our economy. It’s burdening families. It’s burdening businesses. And it is the primary driver of our federal deficits.”

President Obama then focused on the need to control costs. “It means that we look at the kinds of incentives that exist, what our delivery system is like, why it is that some communities are spending 30 percent less than other communities, but getting better health care outcomes, and figuring out how can we make sure that everybody is benefiting from lower costs and better quality by improving practices. It means health  I.T. It means prevention. So all of these things are the starting point, I think, for reform. And I’ve said very clearly, if any bill arrives from Congress that is not controlling costs, that’s not a bill I can support. It’s going to have to control costs. It’s going to have to be paid for.”

President Obama next turned to the need to expand coverage to more Americans. “[W]hile we are in the process of dealing with the cost issue, I think it’s also wise policy and the right thing to do to start providing coverage for people who don’t have health insurance or are underinsured ….”

He then went on to describe the rationale for including a public health plan as one of the health plans available to American consumers. “As one of those options, for us to be able to say, here’s a public option that’s not profit-driven, that can keep down administrative costs, and that provides you good, quality care for a reasonable price as one of the options for you to choose, I think that makes sense.”

The President explicitly rejected the complaints of health insurance carriers who claim a public plan will drive them out of business. “But just conceptually, the notion that all these insurance companies who say they’re giving consumers the best possible deal, if they can’t compete against a public plan as one option, with consumers making the decision what’s the best deal, that defies logic, which is why I think you’ve seen in the polling data overwhelming support for a public plan.”

President Obama’s answer makes sense if the public health plan were just another non-profit competitor. In many parts of America for-profit health insurers compete vigorously with non-profit carriers. Sometimes they win. Sometimes they lose. But the competition between them is fair.

What the president’s answer ignores is the possibility — indeed, the likelihood — that competition between private for-profit and non-profit insurance carriers on one side and a government-run health plan on the other will not be a fair contest. The government, which would both regulates the market and,  under several proposals being promoted in Congress, run the public plan, might tilt the playing field in its own favor (take, for example, the Affordable Health Choices Act introduced by Senator Edward Kennedy and other Democrats on the Senate Health, Education, Labor and Pensions Committee.)

What is nice to see is that President Obama seems to appreciate the balance that must be struck if a public plan is not to undermine the private market. “So there are going to be some ground rules that are going to apply to all insurance companies,” he said. “I take those advocates of the free market to heart when they say that, you know, the free market is innovative and is going to compete on service and is going to compete on, you know, their ability to deliver good care to families. And if that’s the case, then this just becomes one more option.”

Interestingly, the President was not the only Administration member speaking about health care reform on Tuesday. Peter Orszag, the Director of the White House Office of Management and Budget appeared on the Diane Rehm show on National Public Radio. In responding to a question about health insurance profits, he observed that “One of the questions that will be in play during the reform process is whether additional competition, for example, through a public plan option, or a co-op or a non-profit, would be beneficial.”  (For those listening to the podcast, this comments begins at about the 29 minute, 18 second mark). He then goes on to say that co-ops could address a lack of competition in “a growing number of local markets.” (emphasis added).

This is an very significant statement. The health insurance co-ops being discussed in Washington are not government-run. The government provides seed money, either in the form of grants or loans, but once it’s up and running, the co-op is owned and operated by its members. They would be community based and would have to abide by the health insurance laws of their state.  Here is a senior official of the Obama Administration, one of its leading voices on health care reform, describing health insurance co-ops as comparable to a government-run public plan when it comes to providing competition.

Taken together, the President and his OMB Director are saying:

  • Competition in the health insurance marketplace should be preserved as it is beneficial.
  • The purpose of a public health plan is to increase competition in the health insurance marketplace.
  • Health insurance co-ops increase competition as much as a government-run plan.

For those who care about fair competition, please note that it is far more likely co-ops will compete on a level playing field than a government-run plan would — especially if co-ops are concentrated in local markets that need a new competitor.

None of this is to say that a government-run health plan will not be part of the final health care reform package. It does, however, underscore the point I tried to make in my previous post: the final outcome of the health care reform debate is far from settled. The Obama Administration is showing flexibility — and will need to in order to get comprehensive legislation passed. Now is not the time to panic. Now is the time to get involved.

Posted in Barack Obama, Health Care Reform, Healthcare Reform, Politics | Tagged: , , , , , | 7 Comments »

Dr. Gawande’s Radio Interview

Posted by Alan on June 17, 2009

There’s a chicken and egg aspect to health care reform which often frustrates lawmakers and policy makers. To achieve universal coverage the cost of health insurance must be affordable. To make coverage affordable you need universal coverage. So which comes first?

My take is that affordability has to come first. You cannot require people to buy something they cannot afford. When a pen is out of ink, all the regulations in the world won’t fill it again. This means the government has to make coverage affordable, most likely through subsidies of some kind. Subsidies are expensive And the budget, already groaning under the weight of the recession, two wars, an economic stimulus package, existing entitlements, and much, much more. Congress will be hard pressed to find the funds needed to provide the premium support required to get close to universal coverage.

Consequently, affordability needs to come first. This explains, in part, Director of the Office of Management and Budget Peter Orszag’s consistent focus on the as much as $700 billion in medical spending each year that goes towards services which do not improve health outcomes.  He began pushing lawmakers on this issue when he was Director of the Congressional Budget Office and he continues in his new role at the OMB.

The opportunity for health care reform to reign in medical costs received a substantial boost recently with the publication of an article in The New Yorker by Dr. Atul Gawande, a Boston surgeon who is also a staff writer for the magazine. Titled “The Cost Conundrum,” the article described Dr. Gawande’s exploration of medical practices in McAllen, Texas. That community spends more per person on health care than anywhere in the country with the exception of Miami, Florida which has higher labor and other costs. McAllen’s spending is twice that of nearby El Paso, Texas, even though the two areas have similar demographics and similar outcomes. The explanation, Dr. Gawande discovers, is the entrepreneurial culture of the community’s physicians. They maximize their incomes, but fail improving the health of their patients.

The article has been cited by President Barack Obama (who, it is said, has made the piece required reading for his staff), members of Congress, pundits and policy wonks. Few magazine articles have had comparable impact on the health care reform debate.

Those wanting to learn more about what he discovered in McAllen will enjoy an interview with Dr. Gawande  on Public Radio’s Fresh Air. During the nearly 30 minute segment, the doctor expands on his article providing insights from his own practice.

Dr. Gawande has made a valuable contribution to the health care reform debate by shedding light on the correlation between community medical practices, health care costs, and health outcomes. For anyone interested in health care reform, his Fresh Air interview is well worth the investment of time.

Posted in Barack Obama, Health Care Reform, Healthcare Reform, medical cost containment | Tagged: , , , , , | 1 Comment »

Obama Reiterates Support for Public Insurance Plan, Pushes Affordability

Posted by Alan on June 3, 2009

President Barack Obama lined up squarely behind the creation of a government-run health plan today. At the same time the White House has fully engaged on the financing of his health care reform plan.

Whether a public health plan should be created to compete with private sector carriers is among the most controversial issues in the current health care reform debate – and will be one of the most difficult on which to find common ground.  While many Democrats, especially those on the left, are insisting a public plan be a part of whatever reform package emerges from Congress, Republicans are equally firm — and united — in opposing them.

During his campaign for president, then-Senator Obama included a government-run health plan in the health care reform plank of his platform. Lately, however, there were indications there might be flexibility in his position. In a letter sent today to Senators Max Baucus and Edward Kennedy, President Obama removed any doubts as to where he stands. “I strongly believe that Americans should have the choice of a public health insurance option operating alongside private plans. This will give them a better range of choices, make the health care market more competitive, and keep insurance companies honest.”

Senator Kennedy, Chair of the Senate Health, Education, Labor and Pensions Committee, is a strong advocate of a public plan. Senator Baucus, the Chair of the Senate Finance Committee, has been less supportive. It is these two committees which will draft the Senate version of reform. The House bill is all but certain to call for creating a public plan.

The mere fact that President Obama supports a government-run health plan does not mean it will be in the final bill. Republicans appear to be unanimously opposed to the idea and so are some moderate Democrats. Together they could block passage of legislation unless the public plan is removed. Or there could be a compromise. One possibility being discussed would prevent the entry of a government-run plan into the market unless “triggered” by certain (yet to be determined) events.

The President’s letter to the committee Chairmen also conveyed the Administration’s support for a health insurance exchange to help consumers obtain coverage. “I agree that we should create a health insurance exchange — a market where Americans can one-stop shop for a health care plan, compare benefits and prices, and choose the plan that’s best for them, in the same way that Members of Congress and their families can.” Interestingly, this describes an exchange as an information clearinghouse. This falls short of Senator Kennedy’s call for a gateway that would, among other things, “”… negotiate with insurance companies to keep premiums and copays low….”  The Senator is describing something akin to a purchasing pool.

President Obama’s letter addressed market reform, but concentrated on cost cutting measure. “I want to stress that reform cannot mean focusing on expanded coverage alone. Indeed, without a serious, sustained effort to reduce the growth rate of health care costs, affordable health care coverage will remain out of reach. So we must attack the root causes of the inflation in health care. That means promoting the best practices, not simply the most expensive.”

This is part of an Administration-wide effort to focus on making coverage more affordable. For example, Peter Orszag, the Director of the White House Office of Management and Budget, has written two blog posts on the fiscal effects of health care reform (here and here).  In his most recent post he writes of “game changers” that, while not reducing costs immediately, are critical for long term savings. Among the changes he calls for are “patient-centered quality research and re-orienting financial incentives through bundling and payment for quality rather than quantity of services delivered.” Both the President’s letter and the Director’s postingemphasize the Administration’s desire to make health care reform “deficit neutral even over the next five to 10 years, through scoreable offsets such as savings within Medicare and Medicaid and (as necessary) additional revenue.” (“Scoreable” offsets are those recognized in the federal budget. The Congressional Budget Office recently provided guidelines on how they would go about determining the impact various health care changes will have on the budget.)

I expect we’ll be hearing a lot from the White House on health care reform with greater frequency in the next few weeks. While the Obama Administration has been content to lay out broad principles and let Congress hammer out the details, it cannot afford to be completely hands-off. The President has consistently expressed his hope for bi-partisan legislation, but he has been even more vocal that health care reform needs to happen this Fall. The President will need to spend a great deal of political capital to get a bill on such an expensive and complex issue to his desk for signature. He is clearly willing to make that expenditure.

It would have been foolish for the President to back off or even water down his call for a public plan at this stage. My guess is that he will need to push liberals into accepting a reform package that doesn’t go as far as they would like. By siding with them now he’ll be in a better position to do just that when the time for compromise arrives. We’re not there yet, but we’re getting closer.

Posted in Barack Obama, Health Care Reform, Healthcare Reform, Politics | Tagged: , , , , , , , , , , , , | 5 Comments »

Health Care Reform 2009: More Required Reading

Posted by Alan on June 2, 2009

There’s a lot of moving pieces to the health care reform process currently underway in Washington, D.C. Politics, policy, and personal interest are all colliding as lawmakers and President Barack Obama Administration try to fix what everyone is calling America’s broken health care system. To put the debate in context it helps to know what the participants are thinking. To understand what they’re thinking it helps to know what their reading and writing.

Earlier this year I put forward a list of required reading for understanding the health care reform debate. Here’s the second installment of what will be a series of such posts. (Note: a third list of required health care reform reading was added August 2, 2009).

1. The Senate Finance Committee, chaired by Senator Max Baucus, will play a major role in determining the health care reform legislation that is likely to arrive on President Barack Obama’s desk this Autumn. And they are taking this role very seriously. The Committee has produced three policy option documents to facilitate their deliberations. The policy papers don’t describe what the Finance Committee will decide upon, but it does provide insight concerning what they will be deciding upon. The option papers are:

2. The Senate Finance Committee isn’t the only one in the upper house with jurisdiction over health care reform. The Senate Health, Education, Labor and Pensions Committee and its chair, Edward Kennedy, will have a great deal to say about the final legislative package as well. The Committee released an outline of its reform plan yesterday. I have yet to get my hands on that document, although I did find a Senate HELP Committee Briefing Paper dated May 21, 2009.  (When I get a copy of the most current outline I’ll post it here). In addition, as I’ve posted previously, Senator Kennedy recently described his vision for health care reform in some detail. The HELP Committee’s plan stakes out the most liberal, yet still politically realistic, proposals (meaning it doesn’t call for a single payer system). Whether Senator Kennedy expects to get much of what’s laid out in the outline into legislation is unknown. At the very least, by providing an anchor on the left his plan will help him keep the final product from moving what he would consider too far to the middle.

3. As members of Congress begin drafting legislation they will be paying close attention to the impact health care reform will have on the federal budget. The analysts they will turn to for answers work in the Congressional Budget Office.  The CBO recently published guidelines explaining how they will evaluate the budget impact of various proposals in the Budgetary Treatment of Proposals to Change the Nation’s Health Insurance System. An added bonus: the director of the CBO, Douglas Elmendorf, posts frequently to the Congressional Budget Office Director’s Blog, providing additional insight into the agency’s thinking.

4. The Emanuel family has hit the trifecta. Their youngest son is a major Hollywood agent. The middle son is a former Congressman and currently the White House Chief of Staff. Their oldest son is a doctor. Not just any doctor. He is the Chair of the Deparment of Bioethics at the Clinical Center of the National Institutes of Health (that must be one huge business card he’s got). But wait, there’s more. Earlier this year, Dr. Ezekiel Emanuel was named a special adviser to the director of the White House Office of Management and Budget for health policy. In other words, he’s pretty close to health care reform’s ground zero in the Obama White House.  (No slight intended of the Director of the White House Office on Health Reform, Nancy-Ann DeParle, who gets to sit on the actual bulls eye — see #5).  How Dr. Emanuel views reform, consequently, matters. He’s thought long and hard on the subject and, fortunately for inquiring minds, he’s written extensively on the topic, including the book Healthcare, Guaranteed: A Simple, Secure Solution for America. Other writings by Dr. Emanuel include a posting he made to The Huffington Post and another he co-wrote for the New America Foundation.

5. As noted in #4, Nancy-Ann Deparle’s is charged with coordinating President Obama’s health care reform efforts. It’s her job to keep the various players and issues in the debate from spinning out-of-control. Like a traffic cop, it’s up to her to keep things moving toward eventual passage of comprehensive legislation. It’s hard to find much on her personal health care reform positions (if anyone out there has links to her writings on the topic, please let me know).  In an April 2009 briefing for reporters sponsored by the Kaiser Family Foundation, Families USA and the National Federation of Independent Businesses, she did define what she means by a “public health plan.”  You can read a transcript or view a video of her presentation to the press on the Kaiser Family Foundation site

6. Everyone knows the key to health care reform is controlling medical costs. You can have all the market reforms Congress can dream up, but if medical inflation continues to outpace general inflation and wage growth at the rate it has been, it will cripple the economy. Even entrenched stakeholders recongize this reality, which is  how the Advanced Medical Technology Association (AdvaMed), America’s Health Insurance Plans (AHIP), American Hospital Association (AHA), American Medical Association (AMA) , the Pharaceutical Research and Manufacturers of America (PhRMA) , and the Service Employees International Union (SEIU) came to publish their medical cost reduction proposals. The document contains cost cutting committments the organizations have made to President Obama.

7. Perhaps the most talked about article on cost containment making the rounds today is a New Yorker article by Dr. Atul Gawande. It is a terrific read that recounts his investigation into why McAllen, Texas is “the most expensive town in the most expensive country for health care in the world.”  It seems MediCare pays twice as much per person in McAllen than it does 800 miles away in El Paso. Dr. Gawande investigates why, offering insights into the health care system that are too rarely considered.

8. It is generally accepted that 30% of health care spending in the united states is unnecessary. That’s $700 billion we’re talking about that could be spent insuring the uninsured, among other uses. Folks like Peter Orszag, the former director of the CBO and currently director of the White House Office of Management and Budget (which makes him Dr. Emanuel’s boss, for those keeping track) often sites this statistic — and its source: Dartmouth University’s  “Atlas of Health Care.”  They have done numerous and extensive studies on the connection (or lack thereof) between medical spending and health outcomes. Their most recent findings, published February 27, 2009, are described in Health Care Spending, Quality, and Outcomes. It’s subtitle: “More Isn’t Always Better,” pretty well sums up the results.

9. A bonus item: For a 3 minute summary of the health care reform debate, presented in a surprisingly entertaining, clear, and balanced way, take a look at the video at myhealthreform.org.  The video is not an in-depth dive into the issue, but rather an informative overview of the topic. If you’ve got friends, clients or colleagues who are looking for a simple explanation of what the debate is all about, it’s a great place to start. (Full disclosure: the site is run by Humana who clearly has a stake in the outcome of health care reform).

There will be more required reading coming soon. For example, we should hear very soon from the  three House Committees with jurisdiction on health care reform with details on their proposals for change. In the meantime, if you come across any articles, books, postings or the like you think belongs on a list of required health care reform reading for 2009, please send them my way.

Posted in Health Care Reform, Healthcare Reform, Politics | Tagged: , , , , , , , , , , , , , , , , , , , , , , , , , , , , , | 1 Comment »

Is Taxing Health Care Coverage on the Way?

Posted by Alan on March 18, 2009

Ideas percolate through the political process in interesting ways: editorials in authoritative publications, important speeches, and more recently, blogs.

For example, the Director of the Congressional Budget Office maintains a blog and it includes an entire section concerning “Health.” The CBO will have a great deal of influence on the health care reform debate. They will provide the benchmark analysis of whatever plans emerge. What they’re thinking matters and, presumably, what their Director is thinking is what the agency is thinking.

For example, former CBO Director, Peter Orzag, now the Director of the Office of Management and Budget, have long warned of the need to reign in health care costs. According to Jonathan Cohn, writing in the New Republic, Mr. Orzag was one of those within the Obama Administration pushing hard for addressing health care reform now, as opposed to later. Clearly what the budget folks think matter. To gain an insight into Mr. Orzag’s thinking, the CBO Director’s Blog is a good start.

The same holds true for the thinking of the CBO’s new director, Douglas Elmendorf. Consider his recent post concerning reigning in medical care costs. In it he notes that “a substantial share of our national spending on health care contributes little if anything to overall health.”  He calls for providing incentives to control costs and sharing of information concerning the effectiveness of treatment. Then he makes an interesting comment: “… the current unlimited tax exclusion for employment-based health insurance dampens incentives for costs control. Those incentives could be changed by restructuring the tax exclusion in ways that would encourage workers to join health plans with higher cost-sharing requirements and tighter management of benefits.”

This opens up a host of interesting worm-filled cans. During the presidential campaign, Republican Senator John McCain called for taxing the value of health care coverage (along with offsetting tax credits). The Democratic nominee, now President Barack Obama castigated the idea, calling it the biggest tax increase on the middle class in history. However, many in Congress of both parties are reviving the idea. OMB Director Orzag has indicated that all ideas, even taxing the value of health care coverage, needs to be on the table. Few other comments on the topic have been forthcoming from the Administration, but realistically, paying for the cost of universal coverage will require at least a strong look at this revenue option.

On the surface, this makes a lot of sense. The current system is regressive, meaning it is a better deal for the wealthy than for lower income Americans. The higher your tax bracket and the richer your benefits, the better the current system works for you. For example, a CEO earning $500,000 a year, paying an effective tax rate of 40 percent (state and local) and receiving health insurance benefits worth $10,000 per year. If the coverage was taxed, our hypothetical CEO would pay $4,000 in taxes. Instead, she gets a “gift” from the tax code of this amount. Working for this CEO is a clerk, earning $40,000 per year and paying 15 percent in taxes with the same coverage. If the value of health insurance was taxed the employee would pay $1,500 in taxes — his gift is less than half of the CEO’s.

You might think Democrats would be jumping all over this loophole. After all, they’re the party of progressive taxes. Instead, those few who are willing to raise the issue are demonstrating real political courage. Because unions, who contributed millions of dollars and armies of foot soldiers into the election of a Democratic Congress and President, are adamantly opposed to taxing benefits.

For decades, unions have negotiated rich health care benefits for their members in lieu of salary increases. Their members valued the coverage, which was received tax free. It was a reasonable trade-off for employers — they can deduct the cost of health insurance just as easily as they deduct the cost of salaries. Changing the rules of the game would, in essence, punish union members for doing what economists say everyone should do: pursue economic self-interest based on the rules of the game.

There are ways to mitigate the pain unions will feel if health insurance is taxed. As Mr. Elmendorf notes, the tax rules can be modified rather than eliminated so as to encourage consumers to choose cost effective plans. Or the value of union negotiated health benefits could be exempted from the tax for a transitional period, allowing unions and employers to negotiate new contracts under the new rules.

Health care reform is going to be expensive — covering all Americans will cost over $1 trillion. We’re already spending large sums to salvage the tattered economy (and, apparently, to enrich the AIG traders who helped get us into this mess). Yes, the government can print the dollars it needs, but that leads to another problem which goes by the name of  inflation.

If health care reform is going to be enacted in the next 12-to-18 months, which I think it will, the money for reform will need to be identified. My guess is taxing health care coverage will be one of those sources. It won’t be a straight repeal of the current exemption, it may be offset with subsidies and credits, some coverage may be grandfathered for awhile, but the tax is coming. 

Meaningful health care reform will change a lot of the rules we’re used to. This is just one of them.

Posted in Barack Obama, Health Care Reform, Healthcare Reform, Politics, Presidential Election | Tagged: , , , , , , , | 2 Comments »

 
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