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It's Tempting, But the Rich Probably Shouldn't Pay For Health Reform

5 years ago
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The intense months-long national debate over health reform is not convincing Americans that they should be their brothers' and sisters' keepers. Instead, Gallup tells us, fewer than half of us now believe the government should be responsible for making sure people have health care coverage.

It's the first time that has happened since Gallup started asking the question in 2001 and a significant erosion from only a year ago. Back then, 54 percent said yes, that's a federal responsibility, and just 41 percent said no, it is not. This year, the numbers flipped to 47 percent yes, 50 percent no.

In my view this is regrettable from a moral standpoint and, just as importantly, from a political one -- as Democrats in Congress search for ways to finance subsidies for the millions of uninsured Americans who cannot afford to buy policies on their own.

There is a certain justice in the way the House health bill raises nearly half the money for its 10-year, $1 trillion-plus plan. It slaps a 5.4 percent surtax on income above $500,000 for individuals, $1 million for families. This so appeals to my sense of right and fairness that I've been mobilizing for weeks to write a column criticizing the Senate for failing to consider anything like this. Why shouldn't wealthy people foot the bill for part of this overhaul? They've gotten huge tax cuts for the last nine years.

But I've decided to temper my critique of the Senate. For one thing, Senate Majority Leader Harry Reid is considering a variation that promises to at least slightly soak the rich -- dampen them, you might say. It would involve raising the payroll tax that goes to Medicare on income above $250,000 a year. The current rate of 1.45 percent would stay the same for income below $250,000. The size of the surtax and how much money it would bring in may be revealed early this week when the Congressional Budget Office is expected to release an analysis of the Senate health bill Reid has crafted, along with several financing options.

For now the numbers are a mystery, but the motivation isn't. Another revenue source would make more money available for subsidies and give Senate Democrats the flexibility to limit those affected by a new premium tax on high-priced insurance plans.

The excise tax on so-called Cadillac plans would be paid by employers to insurers, and then likely passed on to workers. The problem is that many workers in high-risk occupations, from coal mining and logging to law enforcement and fire fighting, have negotiated for high-end health plans instead of higher wages. "You have to definitely be concerned about taxing plans that are high-cost because workers have very high health care needs," Stephen Zuckerman, a health economist at the Urban Institute, told me.

But he added that, in principle, imposing the tax is a good idea. The thinking is that it would encourage a consensus among insurers, employers and employees to opt for cheaper coverage. CBO and other analysts consider it one of the best ways to influence long-term trends in health spending, which rises at a much faster rate than overall inflation.

The Senate has tried to find all of its cost-cutting, savings and new money for its 10-year plan in the private health-care sector and within the Medicare system; only recently did Reid begin looking at a payroll tax increase. This annoyed me at first. After all, we don't pay for wars by putting a surtax on defense contractors or squeezing savings out of the Pentagon.

You could argue, however, that national security is a core, sometimes urgent function of the federal government while there is no consensus about its obligations on the health front. That doesn't sway me as much as the argument that the "inside health" approach is more likely to curb soaring health costs or "bend the curve" into a slower, less worrisome growth trajectory.

CBO director Doug Elmendorf wrote in June that "savings generated by policy actions outside of the health care system would probably not grow as fast as health care spending. Such would be the case for revenues stemming from the Administration's proposal to limit the tax rate applied to itemized deductions and from proposals to tax sugar-sweetened soda or alcohol, for example."

Such would be the case as well for the House's surtax on the well-off. "It's a progressive way to finance health reform. Certainly that's what Reid is talking about with the payroll tax on high income workers. It's the same idea (as the House), to get some of the money out of people with high incomes," Zuckerman said. He called that "a reasonable way to go -- but it's going to have less of an impact on health-care costs. It just doesn't have the added benefit of giving people the incentive to move toward less generous coverage."

There's at least one more reason to resist the urge to finance health reform in large part through tax increases on the wealthy: We may need them later. Maybe as soon as next year, when the Obama administration and members of Congress up for re-election are going to be shifting focus to deficit reduction. CBO is projecting a $1.6 trillion deficit for this year, the highest percentage of GDP since World War II. And that's just the start of an alarming upward spiral.

The Senate, unlike the more populist House, isn't partial to millionaire taxes. But solvency -- like national security -- is a must, and that leads me to another conclusion I consider regrettable: There is a chance that senators will be more willing to tap people with money when the health issue in question is fiscal, rather than physical.

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