To tax or not to tax health care; that is the question — MedCity morning read, May 26, 2009

There seems to be some confusion — among the media, at least — about who would pay for tax policy changes proposed last week to help reform the nation’s health care system.

Let’s run down some of the proposals.

The Senate Finance Committee proposed taxing some high-income employees (pdf) for the value of their employer-paid health insurance premiums and reimbursements.

Last year, $132.7 billion-worth of employer-paid health benefits were exempt from income taxes, according to the committee’s report. It was by far the government’s biggest health care-related tax “expenditure” in 2008. By expenditure, we mean taxes that were not collected.

The committee proposed several ways to limit or do away with this tax exemption for high-income employees. Employees would pay for this reform effort.

The committee also suggested several ways to collect more money by adjusting income tax exemptions on health benefits provided by Medicare and other government programs. Employees would pay for these adjustments.

And the committee proposed some changes for employers, too, including adjusting the subsidy for employers that pay for prescription drug plans for employees.

The committee also proposed two non-health tax changes — increase taxes on tobacco and alcohol sales – to help pay for health care reform. Obviously, buyers of cigarettes and alcoholic beverages would pay for this effort.

Also last week, Senators Tom Coburn, an Oklahoma Republican and a medical doctor, and Richard Burr, a Republican from North Carolina, introduced the Patients’ Choice Act, which included eliminating tax incentives for employers who pay employees’ health benefits. Employers would pay for this reform.

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