Will taxing health care really reduce the cost?
As we all wait for the Senate Finance Committee to release its bill, we found it quite interesting that a number of folks in Washington are starting to provide more details on how they will pay for health care reform.
Most recently we have come across a number of articles that speak to the possibility of taxing health care plans or at least the so called “golden” or “Cadillac” plans.
David Leonhardt of the New York Times writes –“Members of Congress have come up with one idea after another to pay for covering the uninsured. But they still haven’t put together legislation that could pass. And that’s in large part because most of those ideas have a basic flaw.
They do not raise revenue as quickly as health costs rise. The plan to impose a surtax on top earners, for instance, pays a decent chunk of the bill over the next few years. But, the revenue from the tax rises only as fast (roughly) as the United States economy grows. The same is true of most taxes.
Health costs, on the other hand, are growing much more quickly than the economy. Over the last decade, the economy has expanded by about 20 percent, and health spending has ballooned 50 percent. The gap isn’t about to start closing, either.
So no matter what Congress has done to pay for its plans, it can’t keep up.
The numbers show there is only one sure way out of the problem, and, after months of roundabout discussion, that solution has re-emerged: It’s a tax on health care.” To read the NY Times story click here.
Alec MacGillis of the Washington Post writes -”The Congressional Budget Office director has made it clear that taxing insurance plans would be one of the few ways to get his endorsement that reform will truly “bend the curve” of health-care spending.
But is this assumption correct? Do Americans spend so much on health care because the benefits they receive through work are not taxed?
A vocal minority of participants in the debate warn that the effect of taxing health-care benefits is being overstated. They concede there is a case for limiting the tax exemption — to raise money for universal coverage, as well as to equalize the status between employer benefits and individual coverage bought with after-tax money — but say the strategy is no golden key for reining in costs.”
Yet, here is New York State we DO tax health care to pay for the uninsured - the HCRA covered lives assessment and the hospital surcharge – essentially a “health care tax”. But what has that done to slow the growing cost of health care in New York State?
Kenneth Adams, president and CEO of The Business Council points out in a letter to New York’s congressional delegation –“As you likely are aware, New York State has the broadest safety net of subsidized health coverage options of any state in the nation. This is important to emphasize because while New York’s uninsured population is estimated at 2.5 million, independent analysis indicates that more than 40% of the State’s uninsured population is currently eligible for one of New York’s subsidized health plan options but voluntarily selects out of coverage. These plans include Medicaid, with an extensive menu of services; Child Health Plus supporting coverage for children in households with incomes up to 400% of the federal poverty threshold; Family Health Plus providing affordable comprehensive coverage for adults whose income exceeds Medicaid income thresholds; and Healthy New York, a means-tested coverage option for working New Yorkers who do not receive employer-sponsored and employer-subsidized coverage. Commencing in January, 2010, Family Health Plus will roll out its employer buy-in option allowing small businesses the choice of a comprehensive coverage plan.
All of these New Yorker-subsidized health insurance coverage options come at a cost to New York’s businesses and taxpayers. Currently, taxes on New Yorkers who voluntarily purchase private health coverage total about $4.2 billion per year, reflecting as much as 10 percent of the cost of health insurance coverage in some areas of New York. For example, New Yorkers with private coverage (not any of the subsidized options above) are assessed a “hospital patient services assessment” — essentially a sales tax on health care services performed in hospitals – at 9.63 percent.”
He goes on to say, “The Business Council asks that all financing mechanisms being contemplated to support national health care reform be analyzed for the cost impact New Yorkers will need to bear. Undoubtedly, financing national health care reform for New York’s businesses will mean these taxes will be in addition to, not in place of, substantial mandated health-insurance taxes already borne by New York businesses and its citizens. Small business surtaxes will not equalize New York’s burden – they will exacerbate it. Employer mandated coverage as part of national reform will not lower New York’s businesses costs but add to them as New York businesses will continue to have to pay for New York-subsidized coverage pools already operating.”
Leonhardt and MacGillis also point out that many of the “golden” plans are not just being handed out by Wall St. firms but by the government to union members.
Perhaps in some way taxing these plans could be the way to get governments to rein in their generous offers to their public employee unions and perhaps bring down the cost. We all know that government doesn’t tax itself – but the point made in the Time piece was that the people who receive the most generous plans are often public employees.
Written by Rob Lillpopp on July 30, 2009 – 6:07 am