Editorial: Tax On Health Plans Is Wrong

The Day - October 18, 2009

U.S. Rep. Joe Courtney, who represents our own 2nd District, has raised valid concerns about the proposed tax on high-cost health insurance plans. The America's Healthy Future Act approved last week by the Senate Finance Committee would utilize the excise tax to produce the bulk of the revenues necessary to expand insurance coverage to millions of people now uninsured.

In fact Rep. Courtney, a sophomore lawmaker, has become a leader among those Democrats in the House opposing the so-called “Cadillac” tax. A letter he wrote to House Speaker Nancy Pelosi urging her “to continue to reject proposals to enact an excise tax on high cost insurance plans” has since been signed by about 175 fellow House Democrats, representing a whopping two-thirds of the party caucus.

A recent New York Times cover story on the split among House and Senate Democrats over the health tax prominently featured Rep. Courtney. His prominence in the debate has attracted the notice of the White House, and a visit from President Obama's Chief of Staff Rham Emanuel, heady stuff for a congressman only in his third year.

The hard lines being drawn over how to pay for health care reform could potentially sink the reform efforts. That is certainly not his wish, said Rep. Courtney, a politician who has made his desire for universal and affordable health care coverage a signature issue since his days in the Connecticut House of Representatives.

Beginning in 2013, the government would impose a tax on health plans with total premiums exceeding $8,000 for individuals and $21,000 for families. Any policy costs above those numbers would be subject to a 40 percent excise tax, so the $7,000 overage of a $28,000 policy would incur an additional $2,800 tax. The tax would be paid by insurers, with the expectation they would pass the cost along to customers.

Sen. John McCain, R-Ariz., called for a version of this approach in his failed bid for the presidency. Its chief current advocate, Finance Committee Chairman Sen. Max Baucus, D-Mont., said that in addition to raising needed revenues it will drive down health spending. In an attempt to avoid paying the tax, he reasons, insurers will search for ways to control their costs and employers will be motivated to forgo “Cadillac” benefits.

Rep. Courtney has a problem with that logic and, frankly, so do we. Many workers opted for better health benefits in lieu of salary increases. Now they are supposed to pay higher taxes on those insurance policies or accept lower benefits? Employees in the Northeast, who on average have costlier plans, would be particularly hard hit. And rather than reduce costs, the tax will more likely shift it, to employees.

Rep. Courtney has found allies in both labor and the business community in opposing the tax.

So how to raise revenues, and cut costs? Put tort reform on the table, for one. Congress must stop the rampant frivolous medical lawsuits that drive up malpractice insurance premiums for doctors and health costs for everyone. Also, allow greater competition among insurers. Impose a health surtax on the rich, not as a penalty, but as a share in addressing a national problem.

There is much to like in the Senate Finance Committee health bill, but not the insurance plan excise tax.