How Health Care Was Reformed (and Financed Partly with a Progressive Tax)

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The House and Senate yesterday approved the final piece of the historic health care reform that will extend health insurance to 32 million Americans currently uninsured and prevent health insurers from discriminating against people with pre-existing conditions and capping benefits when people are sick. The legislation will also make it easier for small businesses to provide affordable health coverage without locking workers into employer-provided plans that they will lose if they switch jobs.

The bill passed by both chambers yesterday was the smaller "corrections" bill that made several fixes to the larger bill that the House approved on Sunday and that the Senate approved on Christmas Eve. The President signed the larger bill into law on Tuesday.

The corrections bill increased the number of Americans receiving subsidies to make health care affordable and removed some "sweetheart" deals that individual Senators demanded in the larger bill and later came to regret. The corrections bill also scaled back an excise tax on high-cost employer-provided health insurance while adding an expansion of the Medicare tax.

The debate over how to finance health care reform went through several tumultuous stages over the past year. From the start, lawmakers wanted to finance the reform with savings from within the health care system as much as possible, but it was clear that other revenue sources would be needed.This was one of the key sticking points for many lawmakers.

Progressive Action on Revenue for Health Care Reform

In May of last year, CTJ first presented some ideas about how Congress could finance health care reform in a progressive way. All changes made to the tax code in the previous eight years under President George W. Bush had disproportionately benefited the wealthiest Americans. The bailout for the financial industry seemed to reward Wall Street for its mismanagement, at the expense of ordinary taxpayers. It was time for the wealthy investor class to pay their fair share to help fix America's broken health care system.

We worked for several months with a broad coalition of policy advocates, think-tanks, faith-based groups and labor unions to bring progressive financing options to the attention of members of Congress. State-based groups released reports with state-specific figures while national organizations educated lawmakers about progressive financing options and dispelled the myths that were manufactured to block any increase in revenues.

One of the progressive revenue measures that we championed would reform the Medicare tax so that it is more progressive and no longer exempts investment income.

CTJ worked to significantly modify another revenue measure, the excise tax on high-cost employer-provided health insurance plans. We pointed out that this tax, in the form originally proposed, would affect more middle-income taxpayers than most people realized and would actually make the tax system less progressive overall.

Eventually, the excise tax on high-cost employer-provided plans was scaled back to a reasonable level and Congress adopted the proposal to reform the Medicare tax. But the path to this success was not an easy one.

Attempts at Bipartisanship

It's difficult to remember this now, but a year ago lawmakers and their aides, particularly in the Senate, seemed to honestly believe that a bipartisan agreement on health care reform was possible if enough compromises were made. Democrats were negotiating with Republicans. And not just the Republicans that are often considered "moderates" like Olympia Snowe (R-ME) and Chuck Grassley (R-IA), the ranking Republican on the Senate Finance Committee. Democrats even negotiated with Mike Enzi (R-WY), an unabashed conservative and the ranking Republican on another relevant committee.

It did not work. After being heavily involved in health care negotiations, Senator Grassley abruptly changed his tune. He held up a chart on the Senate floor one day with a children's book drawing of a dragon to illustrate the "Debt and Deficit Dragon," and then held up another chart illustrating a character he called "Sur Taxalot." He then rambled on about how "the surtax [included in the House health bill] is a large, heavy, painful weapon, and lethal to America's job engine, the goose that laid the golden egg," and said that Sur Taxalot "does nothing to slow the dragon's exponential growth."

Then Senator Enzi, during a committee markup, offered countless amendments that essentially contradicted the most fundamental goals of reform.

Meanwhile, the grassroots base of the conservative movement made it clear that they could not be appeased by anything other than a continuation of the status quo. Right-wing organizations such as "FreedomWorks," "Americans for Prosperity," and "Conservatives for Patients Rights," organized a campaign to send hecklers to town hall meetings held by any member of Congress who might possibly vote in favor of any health care reform bill.

The anti-reform protesters, whose main goal seemed to be shutting down any public discussion on the topic of reform, even admitted in some cases that they were not constituents of the lawmakers they were heckling. In other cases, those town hall protesters who claimed to be merely “just a mom from a few blocks away” and “not affiliated with any political party” turned out to be Republican party officials.

Congress Moves Forward and then Stops

By the fall, the battle lines were clearly drawn. On September 9, the President made a special address to Congress and told lawmakers that his health care objectives could be accomplished for less money than was spent on the Iraq and Afghanistan wars and less money than was lost due to the Bush tax cuts for the wealthy.

A day earlier, CTJ had released figures showing that the Bush tax cuts actually cost two and a half times as much as the House Democrats' health care plan. The figures showed that the President was right. The Bush tax cuts for the richest 5 percent alone cost more than the $900 billion price tag that President Obama put on health reform.

In early November, the House approved a health reform bill that included a surcharge on adjusted gross income (AGI) above $1 million for married couples and AGI over $500,000 for unmarried taxpayers. Only one Republican in the House voted for the bill.

On Christmas Eve, the Senate passed its own health care bill, and this one included the version of the excise tax on high-cost employer-provided health plans that CTJ found problematic. In addition to having less progressive revenue provisions, the Senate bill was also less bold in terms of how it reformed health care. For example, unlike the House bill, the Senate bill did not have a "public option," a government-sponsored health plan that could compete with private insurers.

The bizarre rules of the Senate usually require 60 out of 100 votes to pass legislation. Since Democrats had exactly 60 seats in the Senate, every member of the caucus had to vote for the bill for it to pass.

The House and Senate seemed to be on their way, with the help of the White House, to working out the differences between the two bills. The public option was, unfortunately, lost. The high-income surcharge in the House-passed bill was also out. But the excise tax on employer-provided health plans would be scaled back to a reasonable level and the Medicare tax reform would be included.

Then in January the Democrats lost their 60th vote in the Senate when Scott Brown won the Massachusetts Senate seat formerly held by the late Ted Kennedy.

Pro-Reform Lawmakers Stop Panicking and Start Making History

After a period of hysteria among the members of Congress who supported health care reform, a strategy was devised to finish the job even though the Senate now had only 59 members who supported reform.

First the House would pass the Senate bill, which the President would sign into law. To complete this step, the House passed the Senate bill on Sunday while anti-reform protesters swarmed the Capitol in an attempt to intimidate and harass lawmakers. The President signed this bill into law on Tuesday.

Then Congress needed to pass the various amendments that would make the health reform look like the compromise that the House and Senate were moving towards before the Senate lost its 60th vote for reform. These amendments would all be included in a second bill that the Senate would pass through the "budget reconciliation" process. Reconciliation is simply a procedure to allow the Senate to pass legislation that has some impact on the federal budget picture with a simple majority of votes.

Despite their howls of protest against this procedure, the Republicans had actually used it to enact the Bush tax cuts (which actually worsened the fiscal outlook by running up huge deficits) and several other measures.

The "corrections" bill was passed by the Senate on Thursday using the budget reconciliation process and then was passed by the House later that evening. After this long, tortured journey, the dream that has eluded progressive Americans for a century is now a reality.

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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