Tax on Employer Paid Health Insurance?

Here comes the backdoor approach to ending the tax subsidy for employer paid health insurance.


White House officials are embracing a plan to tax “gold-plated, Cadillac”insurancepolicies, giving momentum to an idea that is receiving bipartisan consideration on Capitol Hill.

“A premium charge on top of the most expensive packages is one of the ways to ensure that there’s a lid on health-care costs,” a top administration official told POLITICO. “The president believes this is an intriguing idea.”

Sen. Charles Grassley of Iowa, the top Republican on the Senate Finance Committee, said Friday on Bloomberg TV that he is “taking an intense look at it.”

And top House leadership official told POLITICO that the plan is “something we can live with.”

The idea meshes with House Speaker Nancy Pelosi’s comments in recent interviews that the medical industry, including insurers, can do more to contribute to the cost of health-reform legislation.

Obama told Jim Lehrer of PBS’ “NewsHour” on Monday: “What’s being talked about now, I understand, is the possibility of penalizing insurance companies who are offering super, gold-plated Cadillac plans.

“I haven’t seen the details of this yet, but it may be an approach that doesn’t put additional burdens on middle-class families,” Obama said. “My whole goal is not to add burdens to folks who are already having tough times affording insurance, but actually to relieve it. And so I’ve got to look at the details of that before I make any kind of final determination.

It’s late so I’m not going to go into a long discussion about this. Suffice it to say that if you strip away all of the politics everyone would acknowledge that eliminating the subsidy is the only way to generate the revenues necessary to do health reform on a meaningful basis.

Properly designed it’s probably a political reality but the pressure from the unions is intense not to touch it and we know who pulls the strings at the White House and in the Democratic Party these days.

Therefore, you have to find a way to back into it. This approach is no different than demagoguing about the rich and promising to raise their taxes. You do it and then you say, alas, it wans’t enough and you sock it to the rest of the taxpayers. So too, this is how you eventually eliminate the tax preference. When the revenue gain falls short you simply extend it down the income scale.

Make no mistake, I favor the elimination of this subsidy. It’s one of the most distorting features of the tax code. I just wish the political class was a bit disingenuous.

Yes, I still believe in the Tooth Fairy!

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About Tom Lindmark 401 Articles

I’m not sure that credentials mean much when it comes to writing about things but people seem to want to see them, so briefly here are mine. I have an undergraduate degree in economics from an undistinguished Midwestern university and masters in international business from an equally undistinguished Southwestern University. I spent a number of years working for large banks lending to lots of different industries. For the past few years, I’ve been engaged in real estate finance – primarily for commercial projects. Like a lot of other finance guys, I’m looking for a job at this point in time.

Given all of that, I suggest that you take what I write with the appropriate grain of salt. I try and figure out what’s behind the news but suspect that I’m often delusional. Nevertheless, I keep throwing things out there and occasionally it sticks. I do read the comments that readers leave and to the extent I can reply to them. I also reply to all emails so feel free to contact me if you want to discuss something at more length. Oh, I also have a very thick skin, so if you disagree feel free to say so.

Enjoy what I write and let me know when I’m off base – I probably won’t agree with you but don’t be shy.

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