A health care funding mechanism favored by Democratic leaders in the Senate — a tax on costly health-insurance plans — seems to be in big trouble as members balk at the idea.
But the tax pays for nearly a quarter of the $829 billion plan that provides the framework for the Democratic proposal and even a modest reduction would leave the plan billions of dollars short of being fully funded, which would be a deal breaker with moderate members.
“It's a real problem, isn't it?” said Sen. Ben Nelson, D-Neb., a moderate who opposes the excise tax.
The tax on “Cadillac plans” is by far one of the biggest revenue raisers in the Senate health care bill from the Finance Committee. It would raise $201 billion over the decade beginning in 2013 by attaching 40 percent surcharge on health insurance plan that cost more than $8,000 for individuals and $21,000 for families. Democrats who initially balked at the tax last month were placated a bit when negotiators agreed to exclude policies for high-risk professions such as firefighters and coal miners, whose plans tend to cost more.
Democrats paid for that concession by raising excise the tax for other professions by 5 percent, angering members of labor unions whose deluxe coverage plans would be hit by the tax. Union officials had remained quiet on the issue at the behest of the White House but they broke their silence this week and began an advertising attack on the Finance Committee bill.
The unions are threatening to lobby lawmakers to vote against a bill that includes the excise tax and they may not have to work hard to convince them. In the House, 156 members have already sent a letter to Speaker Nancy Pelosi, D-Calif., telling them they oppose the Senate excise tax.
The $1 trillion-plus House bill is paid for in part by tax increases on the wealthy.
Senate Democratic leaders are well aware that the unpopular excise tax could sink their bill, so they are looking for ways to eliminate it or lessen its effect by increasing the threshold.
“I think we are going to have to raise the level,” Senate Majority Whip Richard Durbin, D-Ill., said. “But it costs money.”
According to the Congressional Budget Office, the excise tax would bring in $46 billion in 2019 and that amount would increase by up to 15 percent each year in the following decade.
That revenue would come from a growing number of policies getting caught by the tax as premiums continue to rise — up to 40 percent of all plans by 2020, according to the Joint Committee on Taxation. Premiums will rise in part because Democratic reform proposals include a requirement that most people to buy comprehensive coverage, which is more costly.
“What they are basically doing is mandating Cadillac plans for everybody,” said Diana Furchtgott-Roth, director of the Center for Employment Policy at the Hudson Institute.