May 19 (Bloomberg) -- The Senate Finance Committee provided an early glimpse of ways Congress might pay for the overhaul of health care President Barack Obama wants, outlining a range of options that included new taxes on employer-provided health insurance and levies on sugar-sweetened drinks.
In a document released yesterday, committee Chairman Max Baucus, a Montana Democrat, and Senator Charles Grassley of Iowa, the panel’s top Republican, said taxing health benefits would address so-called “Cadillac plans” they said promote overuse of health-care services and boost the cost of care. The two senators also proposed scouring Medicare and other aspects of the U.S. health-care system for cost savings.
“Health-care reform must preserve the things Americans like about our health-care system,” Baucus said in a statement. “But it must also begin to slow the rapid increases in health- care costs that take up more and more of the budget for American families and businesses.”
The committee will meet behind closed doors May 20 to discuss the options, with a goal of getting a health-care bill to the Senate floor in July. Obama’s budget request for the 2010 fiscal year sets aside $634 billion over 10 years to pay for health-care changes.
Democrats who control the Senate and House are planning legislation likely to require employers to provide health insurance to workers or pay a penalty, and to create a so-called “public option” insurance plan, similar to Medicare, for some of the 46 million Americans who lack coverage.
‘Health Exchange’
Democrats also are eyeing creation of a “health exchange” where employees of small firms and the uninsured could shop for insurance among several plans at different prices.
To help pay the cost, the Senate panel is considering a number of tax changes, including a new levy on health-insurance benefits.
Employer-provided health insurance is currently not counted as income for tax purposes. The Senate committee is considering capping the tax exclusion based on the value of an insurance policy or the employee’s income level. Another option is to end the exclusion and offer a tax deduction or credit instead.
The idea already encountered opposition.
“That just makes health care more expensive for Americans when the key point of health-care reform is to make health care more affordable,” said Richard Kirsch, national campaign manager for Health Care for America Now, a Washington coalition of organizations that seeks affordable health care for all.
‘Cadillac Plans’
Kirsch criticized the Senate committee’s description of “Cadillac plans” and disputed “the idea that by providing better health-care benefits, you’re providing over-use of benefits.” A health-care plan shouldn’t create “barriers for consumers,” he said.
A top official at the U.S. Chamber of Commerce in Washington said that the business community stands to gain from a health-care overhaul if costs can be contained, so there could be give-and-take over the employer health-benefits tax exclusion if a host of other changes -- such as protections for self- insured employer health plans and medical malpractice changes -- are tied in.
“We’re willing to look at everything, including the many things employers want that are on the table,” said Bruce Josten, executive vice president of the Chamber. He said it’s “impossible to answer” yet whether business would mount opposition to taxing employer-provided health insurance.
While Obama has proposed his own tax changes to finance health-care reform -- including limiting itemized deductions for Americans in the top two income brackets -- the panel’s document didn’t indicate there is much congressional support for those suggestions. Baucus and Grassley, at the end of the options paper, pointed to his ideas in passing, noting they will be considered “in deference to the president.”
Lowering Costs
Obama last week received a commitment from health-care companies and industry groups to pinpoint ways to lower health- care costs by $2 trillion over 10 years. The finance panel document also looks for cost savings within the existing health- care system, including cuts in payments to providers under Medicare and Medicaid.
Baucus, 67, and Grassley, 75, said options include curbing payment rates to Medicare home health-service providers, which they said have the highest profit margin in program. The senators said the government could seek more “appropriate payments” for some types of services and medical equipment, including oxygen and power chairs.
More broadly, they said the inflation rate for Medicare payments could be reduced to reflect productivity gains. Another option is to reduce Medicare payments in regions of the country where spending is above the national average.
Alcohol, Soda Taxes
Some possible tax changes would be designed to nudge consumers away from products deemed likely to boost health costs, including alcohol and sugary sodas. The committee is considering a uniform excise tax of $16 per proof gallon for beer, wine and other alcoholic beverages.
Another option would be to place a federal tax on drinks sweetened with sugar or high-fructose corn syrup.
Both ideas met swift opposition from industry groups. Jeff Becker, president of the Beer Institute in Washington, said the suggestion of a “substantial increase” in alcohol taxes threatens jobs in an industry that already paid $41 billion in taxes in 2008.
If passed, the increase in the alcohol excise tax would be the first since 1991, according to Mark Gorman, a lobbyist for the Distilled Spirits Council of the United States, based in Washington.
“That would be a big hit to the hospitality industry which makes an awful lot of its profits from the sales of beverage alcohol,” Gorman said. “We’re already the highest taxed consumer product in the country other than tobacco. It’s going to be a hard hit to take.”
‘No Logic’
A spokesman for the Washington, D.C.-based American Beverage Association said it’s unlikely there would be enough public support for an additional tax on soft drinks. Kevin Keane, a spokesman for the association, said the public would “see no logic in singling out one product to pay for health care when nearly all foods and beverages have calories. They just see it as a money grab.”
The association represents Coca-Cola Co., PepsiCo Inc. and Dr Pepper Snapple Group, the three largest U.S. soda makers.
Payroll Tax
Other possible tax increases include an extension of the Medicare payroll tax to all state and local government employees, and new limits on -- or outright repeal of -- the flexible spending accounts that allow individuals and their employers to set aside tax-free income to pay for some out-of- pocket medical expenses.
The Senate committee is also looking to boost government revenue by curbing the 25 percent tax deduction for claims and some other expenses now allowed to Blue Cross-Blue Shield health plans. The committee could cut the deduction to 10 percent or end it altogether, Baucus and Grassley said.
Les Funtleyder, a health-care analyst at Miller Tabak & Co. in New York, said he viewed the committee’s document as less a declaration of policy preferences than a testing of the waters.
“Everything here is everything they could possibly do,” Funtleyder said of the paper. “It’s a way to get everyone on the committees up to speed, and it’s a way to see how everyone responds to the various options. Would they ultimately use all of these? I would be very surprised.”
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Topic: Tax on Benefits, Soda Among Options in Health-Care Bill Debate (Read 500 times)