Congress ended up repealing that law in 1989, when part of its funding mechanism, a surtax of up to $800 a year on wealthier seniors, proved wildly unpopular. Seniors had to pay the tax even if they already had catastrophic coverage privately. This year, an unpopular measure being proposed to pay for coverage of the uninsured is a new tax on the health benefits workers get from their employers. Health reform financed in this way could suffer the ignominious fate of 1988’s catastrophic care plan.
Obama derided such a tax on benefits during the presidential campaign, when it was a mainstay of the health plan of rival John McCain. Now it is being touted by Max Baucus, chairman of the Senate Finance Committee, as an alternative to Obama’s plan, which Baucus has rejected. Obama would raise healthcare revenues by reducing wealthy taxpayers’ deductions for charity and mortgage interest payments.
Just how unpopular is the tax on health benefits? Robert J. Blendon of the Harvard School of Public Health and the Kennedy School of Government surveyed six different ways to fund coverage of the uninsured. Taxing health benefits came in dead last, approved by just 26 percent of those polled. The two approaches that won the most favor were increasing the tax on cigarettes (72 percent approval) and increasing income taxes on people from families making more than $250,000 a year (70 percent).
Advocates of a tax on health benefits try to lessen its sting by proposing to limit it to recipients of the most costly health plans. Such plans, however, tend to be in states with high-cost care, such as Massachusetts, and do not correspond necessarily with high income. Members of many unions traded wage gains for extensive health coverage. They should not be penalized now for that choice. Congress could limit the tax to the coverage received by high-income taxpayers, but that would not raise enough money.
There is nothing to stop Congress from providing coverage for the 47 million uninsured without a new funding source and simply adding to the deficit. But after bailing out Wall Street and stimulating the economy with deficit funding, this is not a viable option. If the president and Congress want to reduce the ranks of the uninsured, they need a way to pay for it. A careful perusal of Blendon’s poll could steer them away from a 1989-style crack-up.
