This week, 157 House Democrats (which for math junkies like me, who want to know the actual percentage of House Dems who signed, it’s 62%) signed a letter which put House Speaker Nancy Pelosi (D-CA) on notice that an excise tax on high-cost health care insurance plans is not acceptable. Those who signed the letter believe the tax will hurt many middle class families.
So what exactly is the excise tax? Here’s the scoop: Max Baucus (D-MT) has proposed a 40% tax on so-called “Cadillac” employment-based health insurance plans. Currently, the proposal would define those high-cost plans as plans which exceed $8,000 for a single person or $21,000 for a family per year. The tax would apply to the amount over the cap. So, for example, a $10,000 plan for a single person would be subject to an excise tax of $800 (40% of the overage).
All taxes involve some kind of “and, if or but” and this one is no exception. The cap is raised for plans for workers in high-risk jobs and retirees over the age of 55. Those caps would be $9,850 for a single person and $26,000 for a family per year.
I was astonished to see those kinds of numbers. Those caps for health care benefits are equal to roughly twice the annual salary for minimum wage employees. Surely, those would be reserved for the top 1 or 2% of employees. Not so. The Joint Committee on Taxation has estimated that those caps would still affect 15% of employment-based health insurance plans in the first year alone. That’s a lot of taxpayers.
My gut is that if the excise tax does go forward, we’re going to see those caps go up significantly. But I also believe that if the cap goes away completely, everyone goes back to the table to start from (nearly) scratch. Paying for health care reform is a huge part of the bill and without that piece, it’s not going to move forward. In fact, President Obama has indicated that he will not sign a version of the bill which increases the deficit.
So all eyes on Pelosi to see what the response will be… I’ll keep you posted!
Keep in mind, the sole enforcement mechanism proposed for the excise tax is the withholding of federal payments due: http://www.opencongress.org/articles/view/1276-Non-Enforcement-of-the-Individual-Mandate
Moreover, there’s no penalty or interest for failing to pay. Thus, while limited enforcement does not make the tax less real, it’s not the same sort of bite of one’s wallet; in most circumstances, it’s solely a reduction in EITC or refund.
Actually, I made a mistake – the specific provision there refers to the individual mandate. But I recall seeing the same description of the “Cadillac” excise tax, too.
“Obama has indicated that he will not sign a version of the bill which increases the deficit. ”
Does it even matter? They will just make up numbers to seem like they aren’t going to add to the deficit. Proof – The reports that came out today or yesterday indicating savings of $196million from “other”
Evan,
I agree. It’s scary that we don’t even blink any more in govt when we talk about billions for expenditures as opposed to millions.
Kelly,
Wonderful article, is this one of the taxes that is included in the bill with the Senate Finance Committee? If so, thanks for the update / explanation.
-Joe
Aren’t there exceptions for Union Plans? They are platinum and very expensive plans and I recall that they were, indirectly, below the radar, exempted. What can you tell us, taxgirl?
Thanks for this clear and simple explanation.
From past experience, your concerns that caps will increase is well justified by history of government’s taxing strategies, start low so only a few are affected and complain and then lower the bar so more are taxed diffusing organized, concerted complaining, such as, we are seeing from seniors.
It appears to me that government run health care system will slam The Forgotten Taxpayer without increasing quality or availability of health care.
Bob,
I do not think that union plans are exempt from the proposed caps in this plan. The UAW, for example, has been extremely vocal in its opposition to the proposed caps.
Taxgirl I posted your post on AMT on my blog. My bio is at http://www.bobguzzardi.com and I am supporting Pat Toomey for Senate and the ideas of the Club for Growth. Much of what you post is more technical than policy but I think you feel for The Forgotten Taxpayer, including the small business taxpayer who actually provides employment to people who produce goods and provide services in the real world.
Sorry, my post about you is at http://crnblog.org/?p=4240
Thanks again for posting news we can use.
Taxgirl,
When are folks going to recognize the real winner in all this health care discussion is the health insurance industry? They are the culprits as to the cause of the system ineffectiveness as it is now. Free Enterprise. Yes! Greed, particular excessive greed, no, and indictable NO!
Can anyone of your readers ever say they have a flawless experience when they use their health care? For DuPont pensioners, it is a nightmare. Just as the congressman stated, regarding Republician health care plan, if you get sick, hurry up and die. DuPont CEO and HR feel the same way. Great pension benefit, just do not use it.
No one seems to be concern that the health insurance folks are enjoying the fray about details when they will be the winner regardless. Their CEO’s are quiet, like spectators, waiting for the spoils.
Caps, cadillac plans, excise tax, all are for naught, if the rules aren’t changed for the health care insurance companies. But you don’t see Congress stepping forward to change the health care industry. Why? Campaign funds, pure and simple.
Term limits anyone??
Here is where the rhetoric meets reality. For months, those in opposition of nationalized health care have said that the program would damage any health insurance coverage you already have. Who would be able to keep their Cadillac insurance plan after this. The tax would prohibit these plans for a lot of those that have them. Many new taxes and regulations will undoubtedly come in the near future due to unexpected costs overruns that will inevitably occur and will inhibit our ability to keep the plans we have and force us into a government plan, even if they are not Cadillac plans. The system will be skewed so that eventually, private insurance won’t be able to compete. That is why people have said that any government run health care system will eventually lead to a single payer system because the deck will be stacked in the governments favor.
From the Senate Finance Committee proposal:
The Chairman‘s Mark imposes an excise tax on insurers if the aggregate value of employer-sponsored health coverage for an employee exceeds a threshold amount… The excise tax is imposed pro rata on the issuers of the insurance. In the case of a self-insured group health plan, a Health FSA, an HRA, the excise tax is paid by the plan administrator. Where the employer acts as plan
administrator to a self-insured group health plan, a Health FSA, or an HRA and with respect to employer contributions to an HSA, the excise tax is paid by the employer.
Are flexible-benefits plans included as part of the “Cadillac”? Currently my portion of health insurance cost, and some other employee benefits are exempt not only from income tax but from FICA and Medicare tax as well. The big ticket is that I can stash up to $5000 a year in a flexible benefits account to pay for medical needs that insurance doesn’t cover (co-pays, glasses, and such). In effect, everything that qualifies for that plan costs me close to 40% “less” because it’s completely tax-free.
We can argue all day long about whether or not this kind of plan makes good sense, but you can bet that I cherish each and every dollar of unpaid taxes that I get to keep.
Oh Mr Bruce, just wait. If it “isn’t fair” that some people have insurance and others don’t, it isn’t fair that my wife and I have a health savings account and even get to buy Tylenol with pre-tax dollars. That will just have to be changed.
Just wait if it “isn’t fair” that I have health insurance and others don’t this week, then next week is certainly isn’t fair that my wife and I have retirement plans and most poor people do not have the opportunity to contribute to a retirement plan. The only fair thing is to take the retirement plan and put those dollars into the largest ponzi scheme of the world called Social Security and keep it afloat for some years.
Amazing tho in of itself the democrats want to treat those that are oppossed to their socialist program are “UnChristian”, but then when it comes around their constituuents the union guys would have to pay also, they have to come up with a different program.
Amazing tho in of itself the democrats want to treat that the States would have to pay for those Medicare cuts, that they democrats say won’t happen, but then Hairy makes his and three other states get special treatment and most people don’t even realize it.
Jeff Day
Hey, pinko or no, I can be as greedy as the next guy. I’m 68 — in early 2008 I got a $25,000 a year raise — from Social Security (now $28K, thanks to inflation adjustments). I’m still working at my same old job of the last 35 years and have no plans at all to retire any time soon. Why am I collecting big $ from a retirement program. I think this is a stupid and expensive policy, but I’m certainly not going to send the money back in protest.
And — I wish there could be serious, on-topic debate about the health plan(s). Take the “death panel” alleged issue. Nobody acknowledges that death panels already exist; they’re called insurance companies. Or that insurance companies second-guess your doctor all the time, although they never send a qualified medical person to provide an authentic second opinion, or that they send salespeople to weasel old people into medicare supplement plans whose main purpose is to line the insurance companies’ pockets.
If the health plan did nothing but make private insurance transparent, eliminate “pre-existing condition” clauses and and circumvent in-state only provisions (so that all health plans could be available nationwide, that would go a long way toward reining in health care costs.
And let’s not forget that the drug company lobbyists saw to it that under the “new” and incomprehensible prescription drug plan, Medicare may NOT negotiate drug prices (which all insurance companies do).
The bottom line people, is this. The government is incapable of doing anything right, and once they get their dirty hands on health care you can kiss your money and the best health care in the world good-bye.