Healthcare Overhaul Could Limit Tax Breaks on Benefits

Boston Globe –

July 6: Washington – For the secretaries and environmental engineers, game wardens and van drivers who work for the state of New Hampshire, surgery is free, even at Boston’s top teaching hospitals if it’s necessary. So are MRIs, CT scans, and X-rays.

Pregnant women pay nothing for prenatal care; alcoholics aren’t billed for short stints in rehab. Seeing a therapist costs just $10, as many as 20 visits a year, and prescription drugs top out at $30 for a three-month mail-order supply. New Hampshire state employees get $450 annually toward gym memberships, if they go regularly, or $200 toward their own treadmill and there’s a $150 annual reimbursement for yoga classes, diabetes clinics, and nutritional counseling

They have what some call “gold-plated” or “Cadillac” health insurance. For just $60 a month, state workers’ families get coverage worth $20,400 a year, about 62 percent more than the plan the average American family gets through work. And because the federal government excludes health benefits from taxation, they pay no income taxes on any of it, But that may be about to change.

Desperate to find ways to pay for a healthcare overhaul that could cost more than $1 trillion over the next decade, Congress has begun to look longingly at limiting the tax exclusion on employer-sponsored health benefits, which cost the federal government an estimated $225 billion in foregone tax revenue in 2008.

Ending the tax break entirely is out of the question politically, but next week the Senate Finance Committee is likely to propose limiting it in some fashion – by requiring people with the most expensive insurance, or the highest incomes, or both, to pay some taxes on their health benefits.

President Obama, who is urging Congress to send him a bill this year, dislikes the idea but has not ruled it out. Opponents of the tax exclusion want to get rid of it because they say it is grossly unfair it gives the biggest tax break to those with the highest salaries and the best benefits, while the millions of Americans who don’t get insurance through their employer get little or no help at all.

“It provides enormous tax breaks to those who need them least, and little or nothing for millions of working families who really need help,” said Robert E. Moffit, director of the conservative Heritage Foundation’s Center for Health Policy. “If you are going to give a tax break, you should give it to taxpayers evenly.”

But Diana Lacey, the chair of collective bargaining for the New Hampshire state employees’ union, says it’s wrong to call their plan “Cadillac” coverage, or to encourage employers to offer workers skimpy coverage. A health overhaul, she said, should “bring people up to the standard we have healthcare that is responsible and affordable and you don’t have to go bankrupt to get the treatment you need.”

Defending the status quo is an unlikely set of allies executives of major corporations, who like being able to use tax-free health benefits to attract and retain employees; labor union leaders, who argue their members have sacrificed higher wages over the years to gain and retain good coverage; and some liberals who believe all Americans should have a generous health plan.

The Laborers’ International Union of North America, which represents some 508,000 construction workers and government employees whose family plans can be worth $18,000 or more in the most expensive healthcare markets, has already begun running ads targeting senators who want to limit the tax exclusion.

“If they think they’re protesting in Iran, if they pass a healthcare bill that’s going to tax my members’ benefits, they ain’t seen nothing yet,” said Terry O’Sullivan, the union’s president.

The Laborers’ International and other unions argue that tax policy should support workers who put a high value on good health benefits, so they don’t face bankruptcy or need public assistance when they get sick. The New Hampshire state employees’ union estimates that its members earn 20 percent less than other public sector workers in the state after repeatedly giving up raises in contract negotiations to keep their the generous benefits.

It was an arrangement that for years also suited the thrifty state of New Hampshire it could offer its workers a valuable benefit at a discount. “It was cheaper for them to do that than to pay us more money,” Lacey said. She said the union, now involved in protracted negotiations with the state, would probably renegotiate its contract if the tax exclusion were limited.

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