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For Immediate Release
October 7, 2009
  FOR MORE INFORMATION:
Alan Mlynek
Office: 202.225.4961

 

Levin: Senate Tax on Health Benefits Flawed
  Proposal would hit 4 out of 10 employer-provided health plans after seven years

(Washington D.C.)- Representative Sander Levin joined Reps. Joe Courtney, Pete Stark, Betty Sutton, and Mazie Hirono at a press conference today to unveil a letter signed by 157 members of the House Democratic Caucus to Speaker Nancy Pelosi opposing a Senate Finance Committee proposal to tax so-called “high-cost” health care benefit plans.

“The proposed tax on benefits undermines a basic principle of the reform proposals – to build on the employer-based health care system,” said Rep. Sander Levin.  “The Joint Committee on Taxation says the proposed Senate Finance Committee tax would hit approximately 15% of all employer-provided plans in the first year.  By the seventh year, it would hit nearly 40% of plans.

“I agree that one of the central outcomes of health care reform must be to reduce the rampant inflation in health care costs that is eating up middle class wages in this country.  We should focus on making improvements to the health care system that will attack the root cause of high health care costs, rather than implementing a proposal that would undermine the very employer-based system that we seek to build on.”

As proposed in the amended Senate Finance Committee bill, a 40% excise tax would be imposed on employer-provided health plans with values over $8,000 for a single person and $21,000 for a family.  For people in high-risk jobs and retirees over the age of 55, the thresholds were increased to $9,850 for single individuals and $26,000 for families.  The Joint Committee on Taxation estimates that the tax, as originally proposed, would hit approximately 15% of all employer-provided plans in its initial year.  By the seventh year, it would hit nearly 40% of plans.

The tax would be levied on the amount of the plan that exceeds the threshold levels (i.e. if a family’s plan is worth $28,000, $7000 would be subject to the tax).  The threshold values would increase at a rate of the Consumer Price Index for Urban Consumers (CPI-U) plus one percent. 

The text of the letter, as released at today’s press conference, is available below.

Dear Speaker Pelosi:
 
As Congress continues to consider revenue sources for America’s Affordable Health Choices Act and other health insurance reform proposals, we strongly encourage you to reject imposing an excise tax on so called high cost insurance plans. Such a tax would impact regions with high health care costs in the short-term, and, in the long-term, inevitably extend to more and more middle-income Americans across the country.
 
As you know, the Senate Finance Committee reform proposal, America’s Healthy Future Act, currently includes a 40 percent excise tax on insurers for plans that exceed certain cost thresholds. Real life experience with both health insurers and inelastic markets for services such as health insurance has clearly warned us that this tax will be passed along to insurance payers. Beginning in 2013, the threshold for individual plans will be $8,000 and $21,000 for family coverage. In subsequent years, increases in the cost thresholds will be tied to the Consumer Price Index for urban consumers (CPI-U). The proposal also includes a transition relief rule, which will set cost thresholds 20 percent higher for the 17 highest cost states. The transition relief rule will be phased out by 2015. It is important to note that the proposed thresholds for such a tax already have been surpassed for many middle-income Americans in 2009.
 
For middle-income Americans that have forgone wage and salary increases for strong insurance benefits, these thresholds are simply too low. And, for middle-income Americans who live in the nation’s highest cost regions for health care, the transition relief rule is also too low and phased out far too soon.
 
A Commonwealth Fund report issued on August 20, 2009, “Paying the Price: How Health Insurance Premiums Are Eating Up Middle-Class Incomes,” outlined projected increases in insurance premiums if nothing is done to change the current cost trajectory. According to the report, average insurance premiums will increase 94 percent over the next ten years, with average annual increases of 5.7 percent. The report went on to conclude that average premium costs for family coverage in 2015 will range from $15,508 in the lowest cost state to $19,731 in the highest cost state. Considering high and low cost states will be treated the same with regard to the proposed excise tax in 2015, the average premium projections in high cost regions teeter on the projected cost thresholds of the excise tax.
 
Further, the lessons learned from the alternative minimum tax (AMT) should also serve as a warning for the creation of an excise tax on high cost insurance plans. Over the past four decades, the AMT has morphed from a tax on the wealthiest Americans to a tax on the middle class. In 1969, when the AMT was first enacted, the tax impacted only the wealthiest of Americans. In 2010, nearly one in five Americans will be subjected to the tax. A similar situation with the proposed excise tax is possible considering our experiences with medical inflation.
 
While America’s Affordable Health Choices Act will work to rein in insurance premium costs, these savings will be generated from long-term fixes and may not substantially mitigate premium costs in the short-term before the costs of such an excise tax are passed from the insurer to the customer, including middle-income families.
 
Beyond these other arguments, there is a fundamental flaw in assuming a tax on so called high cost plans will sway choice of insurance coverage, and in turn, discourage wasteful health care spending.  This assumption is based on access to a substantial choice in coverage, which is certainly not the case under our current system. Today, small employers pay more for a given insurance plan than a large employer – not because of benefit quality or an employees’ excessive use of plan benefits, but due to smaller risk pools.  While America’s Affordable Health Choices Act will help close most of these price discrepancies, this won’t be achieved until 2018 when all reforms are enacted.  Further, America’s Affordable Health Choices Act will allow for continued use of age rating with determining premium costs.  While age rating will be restricted, the practice underscores limited choice for cheaper coverage options.
 
America’s Affordable Health Choices Act includes sensible revenue sources to pay for the legislation. However, inclusion of an excise tax on high cost insurance plans, as proposed by the Senate Finance Committee, could have significant and detrimental implications for millions of middle-class Americans. The short-term impact would be greatest on individuals and families living in high cost regions and for those that have sacrificed pay increases for strong benefits. Over the long term, the number of individuals and families subjected to the tax would likely continue to grow. To this end, we urge you to continue to reject proposals to enact an excise tax on high cost insurance plans that could be potentially passed on to middle class families.
 
We look forward continuing to work with you to advance health care reform legislation that expands coverage and lowers care costs.

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