The Middle-Class Health Tax Heist Of 2009 - Pacific Research Institute

The Middle-Class Health Tax Heist Of 2009

Investor’s Business Daily, October 23, 2009
The Kansas Progess, October 26, 2009

Pouring over the details of the 1,501-page health care bill that came out of Sen. Max Baucus’ Finance Committee, it’s clear that the financing is so full of smoke and mirrors that one has to wear a respirator and hard hat to get through it.

But by the time one gets to the end of the bill, estimated to cost $829 billion over 10 years, clarity emerges — the Democrats plan to finance their expanded government care on the backs of America’s middle-class taxpayers.

Baucus and company have decided to tax what the press calls “Cadillac” health plans. Prior to hitting the fine print, this indicates that only excessive, gold-plated plans found in the executive suites would be hit.

Baucus’ “mark,” however, shows that it’s more likely the janitor who will be paying the tab.

Included in the bill is a confiscatory excise tax of 40% on “Cadillac” health plans that cost more than $8,000 for an individual or $21,000 for a family. This appears reasonable, as today most plans are well under these limits.

However, it’s not actually health plans that are taxed at 40%, but the aggregate benefits that relate to health care that employers offer, regardless of whether they are funded by the employee or employer. The limits apply not only to employer-sponsored medical care but also to vision and dental plans.

The most damage is done by Baucus’ attack on Flexible Spending Accounts, lifelines for families with high medical bills that allow them to set aside their own money — not the government’s and not the employer’s — to fund health-related spending with pretax dollars.

Baucus would cap these at $2,500 — half of what the Federal Employee Health Benefit Plan currently offers federal employees — and adds this to what he considers a Cadillac.

This tax-increasing cap applies in 2010, long before any additional health benefits are offered.

And it’s not only definitional handiwork that does damage. Baucus sets the prices today, doesn’t start indexing them until 2014, and then indexes them at a rate well below historical health insurance inflation rates.

If we start with today’s reality and use history as a guide, it is clear Baucus is doing damage to the middle class.

According to the Kaiser Family Foundation, the average employer pays $13,375 for a family plan this year, a rate that’s increased at 8.7% annually for the last decade. Add to that the average $1,569 a family passes through flexible spending, and $1,000 for dental and vision and, in 2009, the total taxable spending for Baucus is $15,944.

This will likely inflate at the historical rate of health insurance spending, yet Baucus holds his $21,000 bogey constant. It’s not until 2014 that he allows his Cadillac to increase in price.

In 2013, when the tax kicks in, the average employer-provided package will already be roughly $21,000, if the last decade serves as a reliable guide.

Every year hence, the employer will be on the hook for the massive tax. By 2023, the average cost of a family plan will be $47,337, and the allowable deduction will only be $30,018. The difference — $17,319 — will be taxed at 40%, costing employers an additional $6,927.

Employers will not pay this tax. Instead, they will cut benefits, shifting costs that must be paid with after-tax dollars to an already burdened middle class.

This is only the damage done to the average American in an average year. Millions of Americans experience years in which they have extraordinary health expenses, perhaps braces for a child that they manage to fund by deferring their own money into Flexible Spending Accounts.

Millions of other families have members with expensive chronic health conditions, such as a child with autism or some other special need. They use flexible spending to purchase therapy and treatments not covered by insurance. Capping Flexible Spending Accounts at $2,500 is a harsh tax that will extract billions of dollars from those who can least afford to pay it.

Baucus’ bill is certain to increase taxes on ordinary Americans spending their own money on health care.

Health reform is no longer about getting coverage to those who need it, but getting a bill for a Democratic Congress and president who want it.

• Pipes is president and CEO of the Pacific Research Institute. Her latest book is “The Top Ten Myths of American Health Care: A Citizen’s Guide.”

Nothing contained in this blog is to be construed as necessarily reflecting the views of the Pacific Research Institute or as an attempt to thwart or aid the passage of any legislation.

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