Taxing employer-provided health benefits, a proposal endorsed by Sen. John McCain (R-Ariz.) but opposed by President Barack Obama during the presidential campaign last fall, has surfaced as a way to pay for healthcare reform.
Senator Max Baucus’ (D-Mont.) proposal at a recent Finance Committee meeting drew criticism from industry experts.
Elise Gould, healthcare economist for the Economic Policy Institute, said that while employer-based health benefits are inequitable because they are skewed toward higher-income workers, it’s premature to consider touching them.
McCain’s proposal would have resulted in the “serious unraveling of the employment-based healthcare system because of the price change,” she said.
Today’s discussion of taxing employer-based health benefits, however, has to be seen in the bigger picture, she said.
The taxation plan will create more uninsured, but Gould said this could be offset if healthcare reform includes a large healthcare system and social safety net. “We have to find a better way to pool risk to get more efficiencies,” she said.
America’s Health Insurance Plans (AHIP) does not support elimination of the tax exclusion, said spokesman Robert Zirkelbach. Pointing out that 170 million Americans get healthcare coverage through their employers, he said AHIP supports reform that doesn’t disrupt coverage that relies upon employees and builds on the current system. “There needs to be a public-private approach that does not upend what’s working right now,” he said.
Devon Herrick, senior fellow at the National Center for Policy Analysis, said McCain’s plan was focused on lessening inappropriate incentives inherent in third-party payment systems. “McCain’s proposal didn’t remove the subsidy; he just changed it by giving consumers a large tax credit to purchase healthcare insurance,” he said.
While Baucus’ proposal takes away the current subsidy, Herrick said, “I’ve not heard anything about what they’ll be giving back.”
Jack Rodgers, director of PricewaterhouseCoopers’ Health Policy Economics Group, said most proposals he’s seen replace the tax exclusion with another subsidy or tax credit. “The idea is to make people pay attention to what they’re buying, not to do away with it completely,” he said.
Taxing employer-based health benefits has been proposed off and on since the early 1980s, but it’s been a nonstarter every time. It’s unclear whether enough political will exists to push it through this time, but Mike Thompson, principal of PricewaterhouseCoopers’ Global Human Resources Solutions Group, said numerous complications need to be worked through, including adjustments to pricing variations based on geography, demographics and the rate structure