Health Benefits Taxation Takes Center Stage

Employee Benefits News
June 16, 2009

After Sen. Edward Kennedy (D-Mass.) released his version of a health care reform bill last week, the Health, Education, Labor and Pensions Committee met to discuss the bill’s provisions. Although the American Health Choices Act does not address how to pay for health care reform, the issue came up quickly in the opening minutes of a June 11 hearing.

“This is — let’s be clear — a sweeping new burden on employers of unprecedented proportion in the benefits area,” testified Randel Johnson, vice president for labor, immigration and employee benefits for the U.S. Chamber of Commerce.

Gerald Shea, assistant to the president of AFL-CIO, framed the issue in context of employees who already have health insurance that’s too expensive for them to use. “To ask them to pay more money for that health coverage is not only unfair, we think it is really, politically, very volatile,” he said.

Referring to his 2008 presidential campaign proposal of providing a $5,000 refundable tax credit in exchange for taxing employee benefits, Sen. John McCain (R-Ariz.) questioned Dr. Scott Gottlieb, a resident fellow at the American Enterprise Institute, on whether or not it would work.

Gottlieb reflected the question and urged the committee to focus on leveling the playing field for individuals purchasing insurance outside of the workplace. “One of the reasons why insurance is so unaffordable in the private market is because people don’t have the benefit of the tax subsidy that’s being afforded when they purchase it through their workplace,” he said.

Janet Trautwein, executive vice president and CEO of the National Association of Health Underwriters, agreed. “I would agree relative to the individual market, at a bare minimum we’ve got to make sure that we have tax equity in every market so that individuals can have the same benefit that those on employer-sponsored plans have.”

However, Dr. Jonathan Gruber, associate head of Massachusetts Institute of Technology’s Department of Economics felt McCain’s proposal would be “a win-win source of financing for the kind of bill we’re talking about.” He called the current financing structure “regressive” and “inefficient in reducing excessive health insurance consumption.”

The debate over taxing employee benefits continued over the weekend, with White House representatives coming out strongly against the idea, just as President Barack Obama did during the presidential campaign.

"The president starts with the premise that 180 million Americans have health coverage through their employer, that attacks on those benefits may dismantle that marketplace," Health and Human Services Secretary Kathleen Sebelius told CNN.

Meanwhile, Sen. Max Baucus (D-Mont.), chairman of the Finance Committee, is expected to come out with legislation as early as this week that will contain provisions to tax employee benefits, various news outlets report.