By Drew Armstrong and Joseph J. Schatz, CQ Staff
January 7, 2009 -- House and Senate Democrats appear headed toward a compromise over the very different revenue-raising provisions in their health care bills.
The final version is likely to include a modified version of the Senate's tax on high-cost insurance plans that union groups would like to kill. But it also may reflect the House's preference for boosting taxes on the wealthy to finance a big expansion of health coverage to uninsured Americans.
Siding with the labor groups, House Democrats have, by and large, vehemently opposed the Senate's proposed excise tax on "Cadillac" plans, a levy that many economists, some senators and the White House have said is necessary to help drive down insurance costs.
But there is a continuing push from the White House to include the tax, as well as a growing acceptance among House Democrats that it will have to be in the final bill in some form or another.
In the legislation (HR 3590) passed by the Senate on Dec. 24, insurers that offer health plans that cost more than $8,500 for individuals and $23,000 for families would face a 40 percent excise tax on those plans. The tax would raise $148.9 billion over a decade, according to the Congressional Budget Office (CBO).
Over the years, the plan costs that would trigger the tax would grow by the rate of inflation plus 1 percentage point. But because health care costs have long risen faster than the Consumer Price Index, the inflation benchmark, the excise tax is expected to hit more and more plans over time. That would make it a far more significant source of revenue in later years and would increase pressure on insurers to keep down costs. The CBO expects employers to restructure insurance plans to avoid the tax in most cases.
According to the Joint Tax Committee, the excise tax would bring in $35 billion in 2019, and 10 to 15 percent more revenue each year for the decade after that.
The House bill (HR 3962), meanwhile, relies on a 5.4 percent surtax on the adjusted gross incomes of individuals making more than $500,000 and married couples making more than $1 million to pay for most of its costs. The tax would raise $460.5 billion over a decade, according to the CBO.
On Jan. 5, Obama said he supports the Senate proposal. And Senate Democratic leaders are holding fast as well, insisting that major changes would lose the support of one or more of the 60 senators they need to overcome a Republican filibuster.
As a result, labor groups and their allies in Congress are looking at ways to modify the excise tax if they can't kill it outright.
"Well, I personally . . . think the House pay-for is much better," said Frank Pallone Jr., D-N.J., chairman of the House Energy and Commerce Health Subcommittee. "First of all it raises a lot more money, it doesn't hit middle-class Americans. But it, you know, it may very well be that we have a combination of the two . . . some combination of the insurance tax and the surcharge on the millionaires."
House Rules Committee Chairwoman Louise M. Slaughter, D-N.Y., said raising the threshold that triggers the excise tax was under discussion. "That will be part of the negotiations between the two houses and the president," she said.
Lobbyists and others tracking the negotiations do not believe the Cadillac tax is going to disappear, nor do they believe that Obama or anybody else is engaging in a bit of theater by holding fast to the tax so that House Democrats can successfully kill it in the end and claim a political victory for their labor supporters.
"I don't think it's a setup for Pelosi to get a win," said one representative from a labor lobby group. "I think they genuinely see it as a viable way to finance health care, and they unfortunately have talked about it for several months."
House Speaker Nancy Pelosi, D-Calif., is standing by the House position at this point, but has indicated that if an excise tax must remain to win Senate approval, the value of plans subject to the levy – currently $23,000 for a family — must be raised, according to a congressional aide.
Ken Bowler, a lobbyist with Dow Lohnes Government Strategies and a former top aide to the Ways and Means Committee, suggested the final revenue package will be a blend of proposals from the two bills.
"I think the tax-financing provisions will be a combination of the three major proposals: Cadillac plan tax, Medicare payroll tax increase and income tax increase for high income," Bowler said.
The Senate bill includes, in addition to the excise tax on costly insurance plans, a 0.9 percent increase in the current 1.45 percent Medicare payroll tax for individual wage earners of more than $200,000 and couples earning more than $250,000.
Still Arguing
Even if they are fighting a losing battle, labor lobbyists and their allies continue to argue against the excise tax.
"We think it's wrong to ask struggling middle-class families to bear the burden of paying for health care reform," said Amaya Tune, spokeswoman for the powerful labor lobby AFL-CIO.
Critics of the plan say that the tax would fall heavily on hard-won health care plans that many unions have negotiated in lieu of higher wages, as well as insurance plans in regions where health care costs are higher.
They also say that the excise tax would violate a key promise Obama made during the campaign – not to raise taxes on families making less than $250,000 a year. "We're working with the president to stick to what he said when he was campaigning," said Rep. Xavier Becerra, D-Calif. "We're trying to make sure that this does not affect middle-class Americans."
White House spokesman Robert Gibbs argued Wednesday that the excise tax would fall on insurance companies, not on individuals.
Rep. Joe Courtney, D-Conn., a leading House Democratic opponent of the Senate excise tax proposal, said Wednesday in a conference call, "I believe very strongly that the American people are on the side of the House" on the issue.
Not all Senate Democrats like the excise tax. Indeed, before the Senate bill hit the floor, key critics such as Charles E. Schumer, D-N.Y., won changes to the original Finance Committee excise tax proposal designed to protect retirees and workers in specific high-risk occupations.
Still, White House officials see the excise tax as a key cost containment mechanism. And House Democratic leaders know that the House's proposed 5.4 percent surtax on the adjusted gross income of top earners faces stiff opposition in the Senate. To win 60 votes in that chamber, the excise tax will almost certainly have to be a large part of the revenue-raising equation in the final bill.
Alex Wayne and Richard Rubin contributed to this story.
January 7, 2009 -- House and Senate Democrats appear headed toward a compromise over the very different revenue-raising provisions in their health care bills.
The final version is likely to include a modified version of the Senate's tax on high-cost insurance plans that union groups would like to kill. But it also may reflect the House's preference for boosting taxes on the wealthy to finance a big expansion of health coverage to uninsured Americans.
Siding with the labor groups, House Democrats have, by and large, vehemently opposed the Senate's proposed excise tax on "Cadillac" plans, a levy that many economists, some senators and the White House have said is necessary to help drive down insurance costs.
But there is a continuing push from the White House to include the tax, as well as a growing acceptance among House Democrats that it will have to be in the final bill in some form or another.
In the legislation (HR 3590) passed by the Senate on Dec. 24, insurers that offer health plans that cost more than $8,500 for individuals and $23,000 for families would face a 40 percent excise tax on those plans. The tax would raise $148.9 billion over a decade, according to the Congressional Budget Office (CBO).
Over the years, the plan costs that would trigger the tax would grow by the rate of inflation plus 1 percentage point. But because health care costs have long risen faster than the Consumer Price Index, the inflation benchmark, the excise tax is expected to hit more and more plans over time. That would make it a far more significant source of revenue in later years and would increase pressure on insurers to keep down costs. The CBO expects employers to restructure insurance plans to avoid the tax in most cases.
According to the Joint Tax Committee, the excise tax would bring in $35 billion in 2019, and 10 to 15 percent more revenue each year for the decade after that.
The House bill (HR 3962), meanwhile, relies on a 5.4 percent surtax on the adjusted gross incomes of individuals making more than $500,000 and married couples making more than $1 million to pay for most of its costs. The tax would raise $460.5 billion over a decade, according to the CBO.
On Jan. 5, Obama said he supports the Senate proposal. And Senate Democratic leaders are holding fast as well, insisting that major changes would lose the support of one or more of the 60 senators they need to overcome a Republican filibuster.
As a result, labor groups and their allies in Congress are looking at ways to modify the excise tax if they can't kill it outright.
"Well, I personally . . . think the House pay-for is much better," said Frank Pallone Jr., D-N.J., chairman of the House Energy and Commerce Health Subcommittee. "First of all it raises a lot more money, it doesn't hit middle-class Americans. But it, you know, it may very well be that we have a combination of the two . . . some combination of the insurance tax and the surcharge on the millionaires."
House Rules Committee Chairwoman Louise M. Slaughter, D-N.Y., said raising the threshold that triggers the excise tax was under discussion. "That will be part of the negotiations between the two houses and the president," she said.
Lobbyists and others tracking the negotiations do not believe the Cadillac tax is going to disappear, nor do they believe that Obama or anybody else is engaging in a bit of theater by holding fast to the tax so that House Democrats can successfully kill it in the end and claim a political victory for their labor supporters.
"I don't think it's a setup for Pelosi to get a win," said one representative from a labor lobby group. "I think they genuinely see it as a viable way to finance health care, and they unfortunately have talked about it for several months."
House Speaker Nancy Pelosi, D-Calif., is standing by the House position at this point, but has indicated that if an excise tax must remain to win Senate approval, the value of plans subject to the levy – currently $23,000 for a family — must be raised, according to a congressional aide.
Ken Bowler, a lobbyist with Dow Lohnes Government Strategies and a former top aide to the Ways and Means Committee, suggested the final revenue package will be a blend of proposals from the two bills.
"I think the tax-financing provisions will be a combination of the three major proposals: Cadillac plan tax, Medicare payroll tax increase and income tax increase for high income," Bowler said.
The Senate bill includes, in addition to the excise tax on costly insurance plans, a 0.9 percent increase in the current 1.45 percent Medicare payroll tax for individual wage earners of more than $200,000 and couples earning more than $250,000.
Still Arguing
Even if they are fighting a losing battle, labor lobbyists and their allies continue to argue against the excise tax.
"We think it's wrong to ask struggling middle-class families to bear the burden of paying for health care reform," said Amaya Tune, spokeswoman for the powerful labor lobby AFL-CIO.
Critics of the plan say that the tax would fall heavily on hard-won health care plans that many unions have negotiated in lieu of higher wages, as well as insurance plans in regions where health care costs are higher.
They also say that the excise tax would violate a key promise Obama made during the campaign – not to raise taxes on families making less than $250,000 a year. "We're working with the president to stick to what he said when he was campaigning," said Rep. Xavier Becerra, D-Calif. "We're trying to make sure that this does not affect middle-class Americans."
White House spokesman Robert Gibbs argued Wednesday that the excise tax would fall on insurance companies, not on individuals.
Rep. Joe Courtney, D-Conn., a leading House Democratic opponent of the Senate excise tax proposal, said Wednesday in a conference call, "I believe very strongly that the American people are on the side of the House" on the issue.
Not all Senate Democrats like the excise tax. Indeed, before the Senate bill hit the floor, key critics such as Charles E. Schumer, D-N.Y., won changes to the original Finance Committee excise tax proposal designed to protect retirees and workers in specific high-risk occupations.
Still, White House officials see the excise tax as a key cost containment mechanism. And House Democratic leaders know that the House's proposed 5.4 percent surtax on the adjusted gross income of top earners faces stiff opposition in the Senate. To win 60 votes in that chamber, the excise tax will almost certainly have to be a large part of the revenue-raising equation in the final bill.
Alex Wayne and Richard Rubin contributed to this story.