Sacrifice for health care reform -- Who us? -- May 14, 2009 Column

By MARSHA MERCER

Last year, Americans voted for health-care reform. Are they now willing to roll up their sleeves and give some blood for the cause?

President Barack Obama says the stars are aligned to pass sweeping reform this year. House Speaker Nancy Pelosi promises to bring a bill to the floor in July. A coalition of industry and labor groups pledges to cut health-care costs by $2 trillion over the next decade.

And yet, when Obama and Pelosi stood outside the White House to cheer coming action on Capitol Hill, House Republicans and senators of both parties were conspicuously absent. Nor have details materialized on how the coalition will cut health-care costs.

As Obama says, “there’s no silver bullet.” For reform to become a reality, everybody will need to give up something. Ah, sacrifice -- always easier in the abstract.

The cost of health-care reform is estimated between $1.2 trillion and $1.5 trillion over 10 years – and the Obama administration has identified ways to pay about half that amount.

While changing Medicare and Medicaid reimbursement formulas and finding waste, fraud and abuse may yield some money, it’s likely the government also will penalize certain behaviors. One idea is to raise federal excise taxes on alcohol and tobacco products. And levy a new federal excise tax on sugary soft drinks. People generally favor excise taxes to pay for health-care reform, at least in theory, according to polls.

The biggest potential pot of money involves millions of workers who already have health insurance through their jobs – and their employers.

For 55 years, Congress has excluded from income taxes the costs of employer-provided health care. The amount employers spend doesn’t count as income for workers, and employers deduct health care costs as a business expense. The tax break is a legacy of World War II when companies, desperate for workers, offered health insurance as a new benefit.

The tax break is a rich target. The congressional Joint Committee on Taxation estimates that $147 billion in potential revenue will be lost this year to the tax exclusion. The committee predicts that a whopping $799 billion won’t be collected from 2008 to 2012.

Presidents since Ronald Reagan have sought to cap the tax exclusion. On Capitol Hill, Democrats as well as Republicans have tried to scale it back. President George W. Bush wanted a cap, then later proposed replacing the tax exclusion with a standard deduction for health insurance.

At a Senate Finance Committee hearing Tuesday, policy wonks from think tanks and academia urged senators to leave open the option of repealing or capping the tax exclusion to help pay for health care reform.

Proponents cite good reasons beyond cost for scaling it back. The tax break disproportionately benefits higher-income people, who are more likely to have jobs with employer-paid health benefits. Low and moderate-income workers are less likely to participate in plans when they are offered because of cost. Analysts also believe people choose more generous plans when they are subsidized, which runs up costs.

People who don’t get their health coverage through their jobs face a much tougher time getting tax relief for their health-care costs. They can deduct their health-care expenses only if the costs exceed 7.5 percent of their adjusted gross income, and they have to itemize.

But here’s the rub: Three-fifths of individuals under 65 get their health insurance through their jobs. That’s a massive group of potentially angry taxpayers.

The current benefit is substantial. An employer’s cost for an individual’s policy averages about $4,750 and for a family, $12,700, the Congressional Research Service reported.

Plus, capping the tax break only seems simple. Many companies would find administering a cap difficult and expensive, according to the Employee Benefit Research Institute.

During the presidential campaign, John McCain backed repeal of the tax break as part of his health-care proposal, and Obama opposed repeal. White House spokesmen say Obama still dislikes the idea of ending the exclusion, but he’s keeping options open.

Sen. Max Baucus, D-Montana, chairman of the Senate Finance Committee, said Tuesday, “To be honest, I don’t think we’re going to repeal the exemption.”

But Congress could cap the tax break for higher-income employees, tinker with employer deductibility, change the tax break to a tax credit or extend the tax credit to those buying insurance on their own. Each has pros and cons that could affect employers and individuals during the worst recession in decades.

So, while nearly everybody agrees that the nation’s health system is broken, we’re about to test our national resolve. Are we ready to roll up our sleeves and give blood?

(c) 2009 Marsha Mercer. All rights reserved.