Insurers' tax on pricey US health plans gains

(For a TAKE A LOOK on healthcare, click on [nN07323916])

* Idea could help House ease proposed tax on the rich

* Insurers would want expanded coverage

* Obama finds insurers’ tax “intriguing”

By Jackie Frank

WASHINGTON, July 29 (Reuters) - A plan to tax health insurance companies on high-end “Cadillac” insurance plans has picked up momentum in Congress as a way to help pay for a $1 trillion overhaul of U.S. healthcare, lawmakers said this week.

President Barack Obama has made healthcare reform his top priority, but has left the gritty details to Congress, where Republicans and fiscally conservative Democrats are pushing to keep it from adding to the already record U.S. budget deficits.

While the administration is counting on savings in government health programs to go a long way toward paying for giving more Americans health coverage, lawmakers still need to fill a big hole.

The insurers’ tax idea has emerged in the Senate Finance Committee, where chairman Max Baucus said it is gaining momentum to become part of the healthcare plan being developed behind closed doors.

Imposing a tax on insurance plans with premiums above $25,000 a year could raise about $90 billion over 10 years, said finance panel member Debbie Stabenow, a Democrat.

An early idea to impose income taxes on workers based on the value of employer-paid health premiums died due to opposition from unions and others. And the House of Representatives, involved in difficult internal Democratic negotiations on the plan, could use it as a way to ease a separate proposed tax on the rich.

But leaders of the House healthcare effort have said they are waiting to see what tax plans emerge from the Senate.

House Democratic Leader Steny Hoyer said on Tuesday it was “a reasonable alternative ... It’s gold-plated, we’re not talking about average policies. Nobody’s talking about taxing average families’ benefits.”

A new tax on expensive health insurance plans isn’t expected to go down well with insurance companies.

“New taxes on health care coverage are only going to make healthcare coverage less affordable,” said Robert Zirkelbach, spokesman for the insurance trade group America’s Health Insurance Plans.

Senior health industry analyst Ipsita Smolinski said “$100 billion on its own is fairly devastating” for insurers and would need to be tied to expanded insurance coverage.

“If the insurance industry is going to cut a deal anywhere close to that level then it has to be tied to an expansion of covered lives,” said Smolinski, of Capitol Street.

Aetna AET.N, WellPoint WLP.N and UnitedHealth Group UNH.N are among the insurance companies that are closely watching what Congress does.


As for the House, the insurance tax could offer a way to mollify those who oppose the tax on the wealthy as currently structured to start at joint incomes of $350,000 a year. This would raise $544 billion in 10 years.

House Speaker Nancy Pelosi has indicated she would like the House’s proposed income tax surcharge on the wealthy to start at $1 million in joint annual income -- and thus will need to make up a revenue shortage to pay for healthcare.

However, those who pay the most for their health insurance are not all executives.

A high-premium plan is “not always a gold-plated plan,” analyst Elise Gould of the Economic Policy Institute said. She cautioned it could hurt those who must buy these plans, including some small businesses and individuals who already have high medical expenses.

While Obama opposed a tax on employee-health benefits, he considers the tax on high end health policies “an intriguing idea,” political adviser David Axelrod said Sunday. He said it would cover policies “like the ones that the executives at Goldman Sachs have -- the $40,000 policies.”

The Economic Policy Institute’s Gould said such a tax could hit many who are forced to pay high premiums because they do not qualify for lower-cost coverage. Small businesses or those who are not in large insurance groups and have high medical costs, companies with older workers, or even families who buy their own coverage but have high medical expenses, could potentially face the tax.

“Small firms are more likely to have an expensive plan,” she said, because they get few offers from insurance companies and have high administrative costs. “One sick person would make insurance high for everyone.”

Both the Senate and the House have included broad insurance reforms that would bar exclusion from coverage for those with pre-existing conditions, would seek to make health insurance more affordable -- either through a government-run insurance option or an insurance coop -- and to hold down costs.

Gould said Congress needs to make sure the safety net is in place before taxing the plans and “make sure people don’t lose their coverage while we are trying to fix the problem.”

And, if the tax is limited to the plans’ extraordinarily generous benefits, they would not raise as much revenue.