Health Reform Financing ProposalsAs health reform legislation moves through Congress, one of the biggest issues lawmakers are contending with is how to pay for the reform. Both Congress and President Obama are firmly committed to passing a bill that is deficit neutral, i.e. is fully paid for. Most experts agree that eliminating waste in the current system will produce tremendous savings. For example, the Medicare Advantage, a program where Medicare enrollees opt out of traditional Medicare and enroll in private health plans that the government subsidizes, costs on average 12 to 14 percent more than coverage under traditional Medicare. By eliminating these overpayments, it is estimated that $159 billion over ten years can be saved (RESULTS continues to support eliminating Medicare Advantage overpayments). However, despite the savings generated from reform, they will not generate enough revenue to cover all the cost. Therefore, other means must be employed to fill that gap. Here are some of the proposals being discussed: Surcharge on wealthiest persons in the U.S.The House reform bill, H.R.3200, would impost a small surcharge on the richest Americans to help pay for reform. For families making over $350,000, beginning in 2011, a 1 percent income surcharge would be charged; for families making between $500,000 and $1,000,000 per year, the rate would increase to 1.5 percent; and for families making over $1,000,000 per year, the rate would be 5.4 percent. The Congressional Joint Committee on Taxation (JCT) has estimated that the surcharge would only apply to the top 1.2 percent of Americans. Furthermore, despite claims that the surcharge would hurt small business owners, the JCT has done an analysis that shows that only 4.1 percent of small business owners would be affected. RESULTS supports this fair and equitable way to pay for health care for all and has signed onto a letter in support of it. Estimate Revenue Generated: $543 billion over ten years. Tax Expensive Health Insurance PlansThis proposal is a variation on eliminating the health insurance exemption. In this proposal, insurance companies would pay a tax on health benefits above a certain value, so called “Cadillac plans.” The rationale is that by taxing expensive health plans would encourage insurance companies to streamline benefit packages and lower costs. Plus, it is intended to only higher income earners, who are more likely to have such plans. However, some people argue that if the tax is not targeted correctly, it could tax employer plans that are expensive not because they provide more expensive benefits but because they cover employees with higher health costs. Estimated Revenue Generated: $418 billion over ten years. Reducing Itemized Income Tax DeductionsPresident Obama has proposed reducing the existing tax deduction for wealthy taxpayers to help pay for reform. Currently, wealthy taxpayers are allowed to deduct certain expenses from their taxes, such as mortgage interest, state and local taxes, and charitable contributions. The amount they can deduct is based on their statutory tax rate, which for high income earners is 39.6 percent. That means for every dollar a person in that bracket spends on a deductible expense, s/he will save 40 cents. President Obama has proposed limiting the deduction percentage to 28 percent, the middle class rate, for high income earners. This would apply to about 1.3 percent of taxpayers. Some have argued that this change would negatively impact charities by reducing donations but an analysis by the Center on Budget and Policy Priorities (CBPP) says that charitable donations would only decrease by 1.9 percent. Estimate Revenue Generated: $260 billion over ten years. Eliminate Tax Exemption on Employer-based Health Insurance BenefitsCurrently, health benefits offered by an employer are not taxed, despite being compensation. Eliminating this exemption would raise billions of dollars in revenue (the exemption cost $246 billion in lost revenue). Evidence shows that the health insurance exemption disproportionately favors high income earners and increases health spending. However, eliminating the exemption could also cause employers to drop health coverage, as they pay a significant portion of health benefit premiums. CBPP has an overview of this exclusion and how it can be reformed to both raise revenue, make it more progressive, and not erode employer-based coverage. Many members of Congress, as well as the President, oppose taxing health benefits. Estimate Revenue Generated: $450-550 billion over ten years, depending on the type of reform. See the CBPP overview for specific estimates. Expand the Medicare TaxCurrently, all workers pay a portion of their wages to finance Medicare. The rate is 2.9 percent of wages, 1.45 percent paid by the employer and 1.45 paid by the employee. Some advocates urge an expansion of this tax for high income earners to help pay for reform. First, the tax would be expanded to include unearned income such as stocks and capital gains. Also, for people making over $200,000 per year, the individual portion of the Medicare tax rate would increase to 2.5 percent. It is estimated that these changes would generate $500 billion over ten years. Finally, the first $50,000 per person in income would be exempted for seniors, since many times their living income derives from unearned income. Estimate Revenue Generated: $500 billion over ten years. |