The big news this week is that, in order to pay for health care reform, Harry Reid is considering a Medicare payroll tax increase that would hit high-wage earners. In theory, Reid could use that money to bolster the Senate bill, so that it could offer more financial assistance to people who need it. But it looks increasingly as if Reid will simply be using the money to compensate for a different change--a watering down of the controversial excise tax that unions and House Democrats have attacked.
According to The New York Times’ Robert Pear, one of the proposals Reid is mulling over would increase the Medicare payroll tax rate by 0.5% to 1.95% for those earning more than $250,000 a year, which is expected to raise some $40 billion to $50 billion a year. The general consensus is that Reid “is seeking money to provide more extensive subsidies to help low- and moderate-income people buy insurance,” Pear writes, noting that the House bill provides $602 billion in such subsidies, while the Senate Finance provides only $461 billion.
But Politico’s Chris Frates this morning flagged a story from Inside Health Policy reporting that Reid also plans to weaken the excise tax on high-cost “Cadillac” insurance plans, raising the threshold for premiums from $21,000 for family plans to $23,000. (In other words, any family plan with premiums over $23,000 would be taxed.) Such a move would be a certain victory for the unions who have been pressuring Senate Democrats to ditch the excise tax, or at least prevent the measure from affecting union members who have effectively given up higher wages for better benefits. It would add to the protections that unions already obtained during the Senate Finance mark-up, when the Democrats successfully added an exemption for high-risk workers. The cost of raising the threshold would be about $54 billion, union sources told Inside Health Policy.
All of the above is still in flux, of course, and the numbers are likely to change. But as things stand, the math seems pretty straightforward: If the Senate adds a payroll tax generating between $40 and $50 billion, but then weakens the excise tax to the tune of $54 billion, money for increasing subsidies just won't be there. And that's awfully hard to justify. Even to the extent that limiting the excise tax benefits some middle-class people, putting that money into subsidies instead would seem likely to help more of them--or, at least, the ones who need help the most.