Health Care Reform: Worth Paying for, and Plenty of Ways to Pay for It

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The good news from President Obama's address to Congress last week was that it included a clear explanation of how health care reform will improve our lives and juxtaposed the benefits of more affordable and efficient health care against other more costly initiatives.

"Add it all up, and the plan I'm proposing will cost around $900 billion over ten years - less than we have spent on the Iraq and Afghanistan wars, and less than the tax cuts for the wealthiest few Americans that Congress passed at the beginning of the previous administration."

President Barack Obama, Address to Joint Session of Congress, September 9, 2009

A recent report from Citizens for Tax Justice finds that the Bush tax cuts cost almost $2.5 trillion over the decade after they were first enacted (2001-2010). Preliminary estimates from the non-partisan Congressional Budget Office show that the House Democrats' health care reform legislation is projected to cost $1 trillion over the decade after it would be enacted (2010-2019).

President Obama said during his address to Congress that his health care plan would cost a little less than the House plan, at "around $900 billion over ten years."

As the President said, even the Bush tax cuts "for the wealthiest few" cost more than his health care plan. The direct cost of the tax cuts for just the richest five percent of taxpayers over the 2001-2010 period is $979 billion. (The cost is even greater if one includes interest payments that resulted because the Bush tax cuts were deficit-financed. 

But there is no obvious reason why the cost of health care reform needs to be less than what has been proposed in the House. There is reason to fear that "moderate" lawmakers will continue to negotiate the overall cost downward to some level chosen entirely arbitrarily, and the result will be fewer resources to make health care truly affordable for everyone.

Part of the problem is that the revenue measures that some lawmakers are considering are not substantial enough. The President suggested in his speech that insurance companies be taxed for each plan they offer that exceeds a certain premium level. Senate Finance Chairman Max Baucus has included a similar proposal in his recently released plan, which would require insurers to pay a tax of 35 percent of the portion of the premium exceeding $8,000 for singles and $21,000 for families for any plan.

There's no official estimate of how much revenue this would raise, but the available information indicates that it would be a great deal less than the $543 billion raised by the surcharge on high-income taxpayers included in the House Democrats' proposal. 

Congress and the White House can find ample revenue by turning to some of the progressive revenue options analyzed by Citizens for Tax Justice, including the surcharge in the House health care legislation. Other progressive options include the President's previous proposal to limit the benefits of itemized deductions for the wealthy and reforming the Medicare tax so that it no longer exempts people who live off their investments.

There is also a dispute among experts about whether or not taxing insurance companies is good policy. Analysts generally agree that, in effect, the tax would be passed on to employers and employees who have the high-cost plans, often called "Cadillac plans" because they're considered to be so generous. So the effect would be the same as a cap on the exclusion for employer-provided health benefits. 

A report from the Center on Budget and Policy Priorities concludes that this will bring down health care costs in a reasonable way, in addition to raising revenue. But some analysts, such as Karen Pollitz at Georgetown University's Health Policy Institute, believe that those with the more expensive plans are not receiving more generous benefits, but merely pay higher premiums because they are employed by companies that have an older workforce or workforce that faces greater health risks. Pollitz argues that "the whole notion of Cadillac plans is kind of a made-up notion."

Either way, Congress should turn to the most progressive revenue options possible, particularly given the shift in income towards the very rich over the past several years and given how much tax cuts have been targeted towards the rich since 2001. The high-income surcharge and the other proposals CTJ has analyzed over the past several months meet that standard.

Thank you for visiting Tax Justice Blog. CTJ and ITEP staff will soon retire this domain. But ITEP staff are still blogging! You can find the same level of insight and analysis and select Tax Justice Blog archives at our new blog,

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