Health Care Reform Is aeCadillacAE Tax Fair?

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Byline: Carla K. Johnson Associated Press

Schoolteacher Kinzi Blair makes $46,000 a year, but she has what many would consider a "Cadillac" health plan, now targeted for a big tax increase by health reformers.

She has $10 copays and no deductible. She gets generic prescription drugs for $10. Her plan covers mental health counseling, organ transplants, acupuncture. It covers speech therapy for preschoolers and in vitro fertilization.

Sound pretty good?

It surely must to millions of Americans who pay high deductibles, hundreds of dollars for prescription drugs or who have no insurance at all. BlairAEs circumstance illustrates the debate over taxes and fairness when it comes to health reform.

"For me, itAEs security," Blair says. "IAEm thankful IAEm in a job where there is health insurance."

Taxing plans like hers is unfair, says Blair, a kindergarten teacher in San Jose, Calif. Like 57 percent of Americans surveyed in a recent Associated Press poll, she favors a new income tax on wealthy Americans, which the House would impose in its bill to pay for expanding insurance coverage to millions.

But the Senate takes a different approach, including an unprecedented tax on the health insurance of people like Blair. The Senate plan would also increase the Medicare payroll tax for high-income Americans and tax elective cosmetic surgery.

The tax on high-dollar health plans would hit only a few very wealthy Americans and many more in the middle class, experts agree. But it also might bring down health care costs by discouraging companies from offering coverage with so many benefits.

Whatever method is chosen to pay for health reform, Congress and President Barack Obama must persuade Americans about its fairness. When it comes to taxes, Americans are hard to convince.

The Senate DemocratsAE bill, unveiled last week, would impose a 40 percent tax on insurance premiums above $8,500 for an individual and $23,000 for a family. Those thresholds represent the total paid by both employer and employee.

BlairAEs premiums cost $11,000 so her insurance company would be taxed 40 percent of the premium that exceeds $8,500 u a total tax of $1,000.

The Senate bill also would increase the Medicare payroll tax to 1.95 percent on income over $200,000 a year for individuals and $250,000 for couples.

Most Americans donAEt know whether the tax on health plan premiums would hit them or not, says John Desser, a health policy adviser to John McCain during his presidential campaigns who now coordinates public policy for eHealth Inc., an online marketer of health insurance.

"I donAEt think most Americans have any idea what the cost of their

premiums is. And I donAEt think most Americans know that the cost of their insurance could go up as a result of this legislation, because weAEre making it more fair for people who have been treated unfairly in this system," Desser says.

The idea is that taxing high-cost health plans would discourage unnecessary health spending and pay for reform out of the health care system itself.

Many Americans never think about the fact that health insurance premiums are now tax-free by law. Employers donAEt pay taxes on what they contribute, nor do workers pay taxes on their portion of premiums. And self-employed workers can take a deduction for their premiums. …