Proposed Medicare Tax Hike Splits Support On Paying For Health Reform

The Los Angeles Times reports that a proposal by Senate Majority Leader Harry Reid to raise the Medicare payroll tax on high earners "is meeting resistance from centrist Democrats who believe (a different) tax on expensive insurance plans could rein in the growth of health costs overall, while a payroll tax hike would not."

The idea started after criticism of a proposal championed by the Senate Finance Committee to tax insurance companies that offer expensive health care plans. "The competing tax proposals pose the most momentous decision facing Reid as he writes the version of the health bill that he will take to the Senate floor." Some worry the Medicare tax wouldn't rein in health care costs as well as a tax on so-called "Cadillac" health insurance plans, which some say would discourage insurers from offering such plans (Hook, 11/17).

CNNMoney reports that the tax hike could miss the mark by not lowering health spending enough. "Under the Senate Finance bill, a 40% excise tax would be imposed on insurers that offer benefits in employer health plans for which the cost of individual coverage exceeds $8,000 and the cost of family coverage exceeds $21,000. Opponents say the excise tax would effectively get passed down to workers." Premiums paid by employers are treated as tax-free compensation, "and there is no limit on how much employers may contribute. A cap would mean workers might have to pay income tax on some portion of their employer's contribution to their health care" and would choose lower-cost plans to escape paying the tax (Sahadi, 11/17).

And that comes with possibility that the Senate bill might not require employers to offer insurance to their workers, The Miami Herald/McClatchy Newspapers reports. "Instead, larger employers would have to pay fees of as much as $750 per worker to help any employee who needed government help to purchase a policy. Most individuals would have to buy coverage, and if they didn't, they too would face penalties." The argument for or against the proposal to make employers offer coverage is likely to be one over government involvement in the private sector (Lightman, 11/16).

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