Taxing Employer Paid Health Insurance

Here comes the backdoor approach to ending the tax subsidy for employer paid health insurance.


White House officials are embracing a plan to tax “gold-plated, Cadillac”insurancepolicies, giving momentum to an idea that is receiving bipartisan consideration on Capitol Hill.

“A premium charge on top of the most expensive packages is one of the ways to ensure that there’s a lid on health-care costs,” a top administration official told POLITICO. “The president believes this is an intriguing idea.”

Sen. Charles Grassley of Iowa, the top Republican on the Senate Finance Committee, said Friday on Bloomberg TV that he is “taking an intense look at it.”

And top House leadership official told POLITICO that the plan is “something we can live with.”

The idea meshes with House Speaker Nancy Pelosi’s comments in recent interviews that the medical industry, including insurers, can do more to contribute to the cost of health-reform legislation.

Obama told Jim Lehrer of PBS’ “NewsHour” on Monday: “What’s being talked about now, I understand, is the possibility of penalizing¬†insurance companies who are offering super, gold-plated Cadillac plans.

“I haven’t seen the details of this yet, but it may be an approach that doesn’t put additional burdens on middle-class families,” Obama said. “My whole goal is not to add burdens to folks who are already having tough times affording insurance, but actually to relieve it. And so I’ve got to look at the details of that before I make any kind of final determination.

It’s late so I’m not going to go into a long discussion about this. Suffice it to say that if you strip away all of the politics everyone would acknowledge that eliminating the subsidy is the only way to generate the revenues necessary to do health reform on a meaningful basis.

Properly designed it’s probably a political reality but the pressure from the unions is intense not to touch it and we know who pulls the strings at the White House and in the Democratic Party these days.

Therefore, you have to find a way to back into it. This approach is no different than demagoguing about the rich and promising to raise their taxes. You do it and then you say, alas, it wans’t enough and you sock it to the rest of the taxpayers. So too, this is how you eventually eliminate the tax preference. When the revenue gain falls short you simply extend it down the income scale.

Make no mistake, I favor the elimination of this subsidy. It’s one of the most distorting features of the tax code. I just wish the political class was a bit disingenuous.

Yes, I still believe in the Tooth Fairy!

You can leave a response, or trackback from your own site.

Leave a Reply