The Baucus Bill: Taxing Insurers
The big revenue item in Baucus's bill is the so-called "excise tax" on high-cost insurance plans. The bill envisions a 35 percent surtax on plans costing more than $8,000 for an individual, or $21,000 for a family. According to the Kaiser Family Foundation's 2009 survey of health benefits, the average insurance plan cost $4,824 for an individual and $13,375 for a family. So this is taxing plans quite a bit costlier than the average, and only a small part of them. For instance: Imagine a family plan that costs $23,000. The tax is not 35 percent of $23,000. It's 35 percent of $2,000, or the value of the plan that falls above the limit.
But this hides a couple of things. First, some plans are very expensive because they're more generous. But some plans are more expensive because they're in wildly expensive markets. New Yorkers, for instance, are going to feel the brunt of this tax a lot more than, well, Montanans will.
Second, the plans exposed to the tax cap are going to become progressively less generous over time. According to CBO, the excise tax only raises $219 billion in the first 10 years. But in the second 10 years, the amount it raises grows by 15 percent every year. That's higher than inflation, obviously, but also higher than health-care costs. The reason is that the tax is pegged to the Consumer Price Index, which grows a lot more slowly than health-care costs. Thus, insurance plans will get more expensive faster than the tax cap will rise, and more of them will get hit by the excise tax. That's not going to be popular, but it will raise a lot of money, or barring that, offer an incentive for people to choose lower-cost plans.
Thinking through all that, though, I have trouble seeing this tax survive in the long run. There seems a substantial chance that it will become like the AMT, and Congress raises it year after year to escape consumer backlash. As I've argued before, the excise tax is a way to seem like you're taxing insurers rather than taxing health-care benefits, even as the practical effect is the same. But though the excise tax might prove easier to pass, I wouldn't be surprised if it's harder to sustain than a cap on the tax deduction. Congress will cross that bridge when, and if, it comes to it, I guess.
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