An issue that seems to be gaining steam is to tax the benefits of employees who receive top shelf health insurance through their employers. The tax is framed as one on those who are covered excessively, which proponents claim will manage waste.
Cadillac tax
The day's big story, from Mike Allen:
White House officials are embracing a plan to tax "gold-plated, Cadillac" insurance policies, 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."
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And top House leadership official told POLITICO that the plan is "something we can live with."
The reality is that this isn't a tax on the rich, just those who have expensive health care. This is nothing more than a new tax on the middle classes. More like a Civic Tax.
Tax increases my very well be necessary, but this is not the group that should be tapped first. The list of possible new tax revenue is long, but to punishment of the well-insured is an absurd starting place. It will not only hit the CEO of Goldman, but many ordinary, struggling Americans:
‘Cadillac’ health care benefits aren’t always what they seem
First, small businesses are paying high premiums for the insurance they provide to their employees—not because the plans are especially lavish, but because they include too few employees to constitute the broader risk pool that would qualify them for lower costs for the same coverage.
Second, employees whose characteristics cause them to be classified as higher risks make them more expensive to insure. Adding a tax on top of the cost of premiums they and their employers pay will likely drive more of them into the ranks of the uninsured.
Many call these high-priced insurance plans "Cadillac" coverage, but that is a misnomer. The high price may stem not from any bells and whistles in their coverage but from a fundamental inequity in the way that insurance for these groups is currently priced. This policy idea is a blunt instrument that may do harm to the very people we should be striving to help.
And the impact will be widespread:
What a tax on health benefits may mean
In the first year of having a cap on the tax exclusion, the impact would be minimal across three of the policy options being discussed on Capitol Hill, said Lisa Clemans-Cope, lead author of the Urban Institute report.
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Under a moderate scenario that would raise an estimated $224 billion in income tax by indexing the cap to growth in the gross domestic product, about 38% of taxpayer households would face a tax increase in 2019, according to the Urban Institute's projections. The average tax increase would be 1.6%, equal to $1,260 in income and payroll tax. This example preserves 90% of the tax subsidies
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Adjusting the cap to keep up with the rapid rise in medical expenses would generate the least revenue of the three options and would affect taxpayer households the least in the next decade. After-tax income would dip 0.7% on average, equal to $570 in income and payroll taxes, and only slightly more than 14% of taxpayer households would be affected. This example would raise $62 billion.