Advertisement
POLITICS
Reassurance For The Already-Insured
Will Americans with health coverage trade higher costs for greater security?
When John McCain last year proposed to eliminate the tax break that encourages employers to provide health insurance for their workers, Barack Obama denounced the idea.
Now Senate Democrats are exploring pro-posals to limit that tax break as one way to fund their universal coverage plans. President Obama isn't promoting that option, but neither is he fighting it, and most insiders believe he'd accept a final package that includes it. Critics on the right sense hypocrisy. The Wall Street Journal editorial page even insists Obama owes McCain an apology.
That wildly overstates the case. If Congress moves ahead, Obama will have to swallow some of his 2008 rhetoric. But critics are exaggerating the convergence between the emerging Democratic proposal and McCain's; limiting the tax break would have very different, and less disruptive, effects than eliminating it. It's the difference between trimming a tree and cutting it down.
Today, if a company provides its workers with health coverage, it can write off the cost of those premiums as a business expense, just like salaries. But Washington doesn't tax employees on their employers' contribution toward their insurance. That "exclusion" makes employer-provided coverage tax-free for workers (and costs Washington about $250 billion annually). This nudge from the tax code helps explain why three-fifths of Americans are insured through work.
During the campaign, McCain proposed abolishing that tax exclusion and replacing it with a tax credit for individuals to buy insurance. That approach would discourage some employers from offering insurance, since it ends the tax advantage for providing it through work. Most experts agreed that McCain's proposal would have driven millions of Americans from employer-provided coverage into the individual insurance market, exposing them to far greater variations in the cost, and availability, of coverage depending on their age and health.
By contrast, Democrats are now considering proposals to maintain but limit the employer exclusion. Workers could be taxed on their health care benefits once their employers' contribution to their premiums exceeds a given level (say, the typical employer share for an average family plan, about $10,400), or once the workers' own income crosses a certain threshold. Most proposals would apply both measures -- taxing the most-expensive plans just for better-paid workers. Even proposals that taxed only relatively affluent workers with generous plans could raise $180 billion to $440 billion over 10 years depending on the details, calculates Jonathan Gruber, a Massachusetts Institute of Technology health economist. That revenue, added to the $500 billion or more in Medicare and Medicaid savings that Obama is seeking through 2019, would nearly cover the bill for universal coverage -- now estimated at around $1 trillion over 10 years.
Gruber projects that such limits on the tax exclusion might prompt a negligible 1 percent of employers to drop coverage (compared with 10 percent or more under McCain's approach). Instead, Gruber says, limiting the tax preference would probably encourage employers to offer less expensive plans that require workers to pay more in deductibles and co-payments.
Surveys by the nonprofit Kaiser Family Foundation have found that Americans with insurance worry both about affording their medical bills and losing their coverage. If Congress funds a universal coverage plan partly by limiting the tax exclusion, it will place those priorities in tension. Limiting the exclusion would force many of the insured to pay more from their own pocket for health care and ask some of them to contribute more in taxes, too.
But, as Gruber notes, reform would provide the insured more security by guaranteeing all Americans the right to buy insurance at affordable rates, without regard to prior health problems, and with help from government subsidies for low- and middle-income families. In effect, limiting the tax exclusion would mean that those with coverage would be purchasing insurance for their insurance.
Would the 85 percent of Americans who are now insured accept that deal? It would help if Obama can convince them that reform eventually will slow the rise in health care costs. Even if their near-term costs increase, many of the insured "might be willing to pay a little more" if they believe "they can count on their insurance more in the future," says Drew Altman, the Kaiser Foundation's president. Nothing may be more essential to finally achieving health coverage for all Americans than convincing those who are already insured to trade higher costs for greater security.