Magazine article The American Prospect

Last Chance for Health Reform

Magazine article The American Prospect

Last Chance for Health Reform

Article excerpt

After the House and Senate passed similar health-care reform bills late last year, Democrats seemed unlikely to snatch defeat from the jaws of victory. But as of early February, that looks to be the outcome unless House Democrats come to their senses and vote for the bill the Senate approved in December, preferably with changes made through the Senate's 51-vote budget-reconciliation process but without those changes if necessary.

Before the Massachusetts election that deprived Democrats of their 60th vote in the Senate, I had hoped that the House could prevail on several key points, including federal control over the insurance exchanges. But without a 60th vote, the calculus changes. The limited leeway in the Senate puts the onus on the House to act-and none of the issues being raised by House Democrats is serious enough to warrant the legislation's defeat.

Consider two stumbling blocks to passage from the standpoint of the values of the House Democrats who object to these provisions: the Senate's tax on "Cadillac" health plans and its less-than-absolute restrictions on abortion coverage.

In the first ease, the objection comes from progressives who presumably believe in progressive taxation. But current law, which excludes all employer payments for health insurance from taxable income, is highly regressive in the exact sense of that word: The exclusion increases in value the higher one's tax bracket, and it costs the Treasury some $250 billion a year, roughly as much as federal spending on Medicaid. It's also one of the primary reasons health care has become so costly.

The idea behind the Senate excise tax on high-cost plans is to put a lid on this tax subsidy. Or to put it another way, the aim is to reallocate to the uninsured some of the subsidies now going to people with the most generous health coverage.

The Senate bill imposes a tax on health plans to the extent they cost more than a given amount--in the case of family coverage, more than $23,000 a year. (By comparison, employer-sponsored family coverage averaged about $13,000 in 2009.) In other words, if a plan costs $25,000, $2,000 would be subject to the 40 percent tax, which would come to $800. But assuming that the family in question faces a marginal tax rate of 28 percent, they would already be receiving a tax subsidy of $4,900 for their health plan if the employer paid 70 percent of it, and even after the $800 tax, they would still enjoy a net subsidy of $4,100. …

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