Tuesday, December 29, 2009

The Fine Print on the Senate's Health Care Bill

Bob Herbert, who I can assure you I basically never agree with, has written an interesting article in the New York Times taking a deeper look at the Health Care Bill that just passed the Senate on Christmas Eve last week.

His premise is simple: When it comes to how the Health Care bill will be paid for, The Senate Lied.

Or, at the very least, the Senate was less than truthful about who will be taxed. Up until now, we have all be under the impression that the tax would be levied upon the rich. Indeed, the House Version of the Health Care bill plans to tax only those individuals making over $500,000/yr (hardly "middle-class" by anybody's standards) or families making over $1 Million/yr (ditto). The Senate Version of the Health Care bill, however, plans to tax these so-called "Cadillac Health Care Plans" which are plans where individual people pay premiums over $8,500/yr, or where married couples pay premiums over $23,000/yr.

His article goes on to make an observation which, if true, is a bit troubling to say the least:

"Within three years of its implementation, according to the Congressional Budget Office, the tax would apply to nearly 20 percent of all workers with employer-provided health coverage in the country, affecting some 31 million people. Within six years, according to Congress’s Joint Committee on Taxation, the tax would reach a fifth of all households earning between $50,000 and $75,000 annually. Those families can hardly be considered very wealthy."

He goes on to state the following:

"Proponents say the tax will raise nearly $150 billion over 10 years, but there’s a catch. It’s not expected to raise this money directly. The dirty little secret behind this onerous tax is that no one expects very many people to pay it. The idea is that rather than fork over 40 percent in taxes on the amount by which policies exceed the threshold, employers (and individuals who purchase health insurance on their own) will have little choice but to ratchet down the quality of their health plans...If even the plan’s proponents do not expect policyholders to pay the tax, how will it raise $150 billion in a decade? Great question.We all remember learning in school about the suspension of disbelief. This part of the Senate’s health benefits taxation scheme requires a monumental suspension of disbelief. According to the Joint Committee on Taxation, less than 18 percent of the revenue will come from the tax itself. The rest of the $150 billion, more than 82 percent of it, will come from the income taxes paid by workers who have been given pay raises by employers who will have voluntarily handed over the money they saved by offering their employees less valuable health insurance plans. Can you believe it?"

Upon hearing this news, many people have been raising questions as to whether this breaks Obama's campaign pledge not to tax people making less than $250,000 a year.

Although I agree with Herbert that the Senate's tax proposal sucks, (the House version is much better) I am not so sure it will have the impact on the middle class that he and others hypothesize that it will. I say this for two reasons: (1) as the bill is written, it does not tax people making less than $250k/yr; and (2) because in order for this tax to reach the middle class as the CBO predicts, they would have to be paying premiums in excess of $8,500/yr (or $23,000/yr for families).

That's a lot of cheddar!

I don't know about you, but I'm looking at my pay stub right now and my medical deduction for my premium is $55, and I have your average run of the mill PPO health care insurance. That means I pay $660 for the year. For me to go from $660 a year to $8,500 a year would take a lot. But the CBO is making a prediction that 31 million American will be at this level or higher within 3 years of the enacting this Health Care bill.

My Questions:

1. Let's assume the CBO and the Congressional Joint Committee on Taxation are right for a moment - IF they are right, did the Obama Administration screw up on the pledge not to tax those making less than $250,000/yr?

2. Regardless of what the CBO says, is this tax a good idea in the first place?

3. Do you believe Bob Herbert got it right or got it wrong?
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