Just as President Barack Obama got his health care reform initiative started, a key point of controversy during his campaign against Sen. John McCain reared its ugly head–the notion that employer-paid coverage should no longer be tax-exempt. That's bound to create a political backlash with voters, and it might prompt wider support for a single-payer system.
Stirring the pot was a March 12 story in The Washington Post, headlined: "Workers' Health Benefits Eyed for Taxation." While President Obama and Sen. McCain clashed during last fall's presidential campaign on this touchy subject, Republicans are not the only ones raising the possibility of slaying this sacred cow.
As the Post reported, "in recent weeks…Sen. Max Baucus, D-Mont., chairman of the tax-writing Finance Committee, has repeatedly advocated changing tax laws to include employer benefits…Meanwhile, 13 other senators–from both sides of the aisle–have signed on to a plan for universal coverage that includes a tax on employer-provided benefits."
President Obama, despite criticizing this idea during the campaign as a major middle-class tax hike, "hasn't slammed the door on it," noted the Post. In fact, White House Budget Director Peter Orszag said taxing employer benefits was among several ideas that "most firmly should remain on the table," the Post reported.
"Some congressional Democrats say the White House has signaled that [President] Obama would accept a tax on employer benefits as long as he didn't have to propose it himself," the Post wrote.
While President Obama recently proposed setting aside $634 billion over 10 years to help finance wider health insurance, where he might raise that kind of money is far from settled. The huge pot of untaxed money spent by employers to cover workers is certainly a tempting target.
I don't think the average American worker has any idea how huge an impact this titanic shift would be for them financially. The blow might be cushioned for lower-income workers via the kind of tax credit proposed by Sen. McCain during his campaign, although the figure he floated would not nearly cover the cost of most plans now being offered.
This is the conundrum faced by anyone looking to cover the 45-million-plus without health insurance: How do you pay for their care without taking something away from those already insured?
Most who have coverage must still lay out thousands to pay their portion of the premium, co-payments, deductibles and out-of-network charges. If told they must also pay income tax on the full premium, many will not be able to pony up. They will either have to accept lesser coverage for a cheaper price, or drop their insurance altogether–which would defeat the purpose of reform.
Despite all the tough talk reported in the Post, when push comes to shove, I cannot imagine Congress bravely marching into the political firestorm this radical idea will undoubtedly spark.
When voters get wind of how much more will be coming out of their pockets to pay for coverage, and once they realize they might have to accept lesser benefits to assure affordability, most will be furious. Will Congress have the guts to impose such a costly change in policy–public reaction be damned? I doubt it.
Indeed, if voters are told they will have to pay a huge tax bill to keep their health insurance coverage, might the stage not be set to simply expand the payroll deduction already in place for Medicare and create a universal, single-payer system? I would think so.
Sam Friedman is NU's Editor In Chief. To respond to his column, e-mail [email protected], or go to his blog at www.property-casualty.com.
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