Kerry postpones effort to trim health insurance tax

Democrats on the Senate Finance Committee want a proposed excise tax on expensive health insurance plans scaled back but Sen. John Kerry (D-Mass.) has decided to punt on the issue until after the panel completes its work on the bill.

Kerry and committee Democrats are concerned that the tax would hit too many insurance plans that cover low- and middle-income workers and retirees. But, in what has become a pattern during the committee's mark up for Kerry, he raised an amendment to change the bill Wednesday morning only to withdraw it.

The tax issue is one of the most critical concerns the committee's Democrats expressed about the bill, which was authored by committee Chairman Max Baucus (D-Mont.). Labor unions, a powerful Democratic constituency, oppose the tax outright but Kerry and his allies are seeking to reduce its impact, not eliminate it.

"I believe we'll prevent the provision from having unintended consequences in the out years," Kerry said, as healthcare costs grow and the tax is applied to more insurance plans. "The threshold is currently set at a level that is too low."

Kerry indicated that other committee Democrats and he were still trying to find a way to make up for the tax revenue that would be lost by reducing the tax from the level in the underlying bill. A solution to this quandary, Kerry said, will likely have to wait until after the committee finishes its mark up.

Instead, Democrats will seek write a new tax provision into the legislation when their leaders 
merge the Finance Committee's bill with a measure already approved by the Senate Health, Education, Labor and Pensions Committee.

The Baucus bill would levy a 40 percent tax on insurance companies when they sell a health insurance plan worth $8,000 for an individual and $21,000 for a family plan. The threshold is higher for early 
retirees and workers in high-risk jobs ($8,750 and $23,000). The amounts for everyone would increase over time based on the growth in the Consumer Price Index plus one percentage point beginning in 2014.

Altogether, the tax would raise more than $200 billion over 10 years, according to the Joint Committee on Taxation. Moreover, the Congressional Budget Office predicts that limiting the sale of high-
cost insurance will drive down overall healthcare spending in the long term.

The Kerry amendment, co-sponsored by Democratic Sens. Maria Cantwell (Wash.), Robert Menendez (N.J.), Jay Rockefeller (W.Va.), Chuck Schumer (N.Y.) and Debbie Stabenow (Mich.)., would increase the individual threshold to $9,800 and the family threshold to $25,000. In addition, it would exempt health benefits won in existing collective bargaining agreements between employers and union workers.

To generate enough new revenue to scale back the excise tax, Kerry said Democrats were looking to revive one of President Barack Obama's original proposals to pay for healthcare reform: a cap on itemized deductions.

Baucus already changed the language before the mark up to index the thresholds for inflation and carve out exemptions. Kerry acknowledged that Baucus moved in his direction but said it was not enough to alleviate Democrats' concerns.

Kerry, who originally presented the idea of an insurance excise tax to Baucus, conceived it as a way to simultaneously accomplish several healthcare reform goals: Raise revenue by taxing insurance companies that sell so-called Cadillac plans; discourage healthcare spending by reducing the number of very generous health insurance policies; encourage employers to buy cheaper insurance and convert the savings to taxable wages, thus raising more revenue.