Senate plan to tax health plans is bad policy

Millions of working Americans will pay thousands of dollars more in taxes under the Senate proposal that taxes healthcare benefits to finance reform.

According to the Congressional Budget Office, this excise tax will affect one in five Americans.

Millions more will have their health benefits cut and see their costs go up. This is the opposite of healthcare reform.  

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This proposal has been mischaracterized as an excise tax on “Cadillac plans,” leading one to believe it would only cover Wall Street CEOs.

But so many average families will be affected by the excise tax — as many as 30 million families in the first five years — that it can rightly be called a massive tax hike on the middle class. The devastating effects of this very real tax increase have been lost in the debate over whether health reform will include a public option. 

Don’t get us wrong. We strongly support healthcare reform. Our system is so badly broken that it threatens our economic future. It costs too much, delivers too little and covers too few people.

But there are better ways to finance healthcare reform than levying a new tax on working and middle-income Americans. The House of Representatives gets its right. The House has passed a plan that requires most employers to provide healthcare for workers that would raise $135 billion and includes a small surtax on people who earn more than $500,000 a year, raising another $460 billion.

In contrast, the Senate plan is bad public policy. It would make those companies that already provide healthcare pay more, instead of making healthcare-freeloading employers pay toward employees’ healthcare coverage. It taxes the middle class. Again, the opposite of real healthcare reform.

Many, many people are in expensive plans because they are old or sick or work in dangerous professions. Some people have costly plans because they live in places where insurance companies have monopoly power. Plans with more women workers have higher costs. And the list goes on.

The Senate’s proposed tax would apply to one-fifth of all employers in the first year that health reform takes effect, 2013. More and more people would get hit each year after that. That’s because the threshold for taxable plans is indexed for inflation, which rises more slowly than healthcare costs.

Technically, the Senate proposal taxes employers’ insurance plans. But a mere 2 percent of employers would pay the tax themselves and keep benefits at the same level, according to a study by Mercer Consulting. A Towers Perrin survey found that 87 percent of employers said they will cut benefits if reform increases their costs, and 86 percent said they would pass the additional costs on to workers.

Take a look at how federal workers covered by the most popular health plan, the Blue Cross/Blue Shield standard plan, would be affected:

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Single people in the plan will get hit right away. They will pay an average of about $1,600 more per year for 10 years. Families will get hit in the third year, paying an average of about $2,000 more per year for 10 years.

It gets worse. By 2022, the family plan is projected to cost $5,500 in taxes per worker, while single people could pay as much as $3,500 per worker.

It’s not just federal employees. Middle-class families in private and public sector jobs will be hit hard by this tax on healthcare benefits.
We want to work with the Senate, the House and the administration to achieve real healthcare reform. Taxing middle-class wage earners isn’t the way to do it.

Hoffa is the Teamsters General president and Cohen is the Communications Workers of America president.