No Tax, No Spend
Taxing health benefits is a great way of funding health care reform. So why are unions working so hard to stop it from happening?
By Dylan Matthews
July 23, 2009
LIUNA’s ad that attacks changes to health care.Laborers’ International Union of North America (LIUNA) does not like Max Baucus’ health care plan. It hates the plan so much, in fact, that LIUNA has put attacks ads on the air in the Senate Finance Committee chairman’s home state of Montana. “This plan would tax your health insurance benefits,” the ads warn. “Working families will pay even higher taxes than they do now.” The ads end by imploring Montanans to take action. “Montana families want health care reform that works—not more taxes. Tell Sen. Baucus that taxing benefits is the wrong way to fix health care,” the ad urges.
Attack ads against health care reform from special interests are a dime a dozen. But LIUNA is not a pharmaceutical or insurance lobby. It is a labor union that represents half a million construction workers. It has been airing the ads in Montana, North Dakota (home of Senate Budget Committee chairman Kent Conrad), and Iowa (home of Senate Finance Committee ranking member Chuck Grassley) since late June. And LIUNA isn’t the only union taking up the fight. The American Federation of State, County and Municipal Employees (AFSCME) has been attacking Ron Wyden for his health care plan, which would make health insurance benefits fully taxable, since May. Alan Reuther, the legislative director for the United Auto Workers, told the New York Times that taxing benefits would “undermine good health care coverage." Mike Hall at the official AFL-CIO blog called taxing benefits “an all-around bad idea.”
But it’s not actually a bad idea. Most serious liberal health care wonks view taxing health benefits as not just a necessary means to raise revenues, but a good proposal in its own right. One unnamed notable health reform advocate told Washington Post blogger Ezra Klein bluntly that, “If you can’t reform the employer tax exclusion, you can’t find the money to reform the health-care system.”
Changing the way health care benefits are taxed, has the ability to change the fundamental nature of the American health care system. “Not only would it raise the money we need for universal coverage,” Jonathan Cohn, The New Republic’s resident health wonk, wrote in March. “It would also open the door to making other changes in our health care system—the kind that are necessary if, over the long run, we want to give people better, less costly medical care.”
Taxing peoples’ health benefits does sound rather onerous and unfair. But the way the health care system works now is considerably more unjust. Under the current system, there is no limit to the deduction employers can take, meaning that a gold-plated insurance plan is taxed just as much as a barebones one. This amounts to huge tax breaks for the rich and well-compensated. This also creates an incentive for people to get more treatment than they really need. As the New America Foundation’s Shannon Brownlee proves in her book Overtreated, this has greatly deleterious effects on the nation’s health and the nation’s health spending.
Further, the tax exemption entrenches employers as the primary providers of health insurance. The deduction was first enacted in the late 1940s. This made more sense when it was far more common for workers to stay with a single company throughout the course of their careers. But today, movement among several companies throughout the course of one’s career is common. Tying health benefits to employers only breeds insecurity among workers. It is no more logical to have employers pay for health insurance than to have them pay for auto or life insurance.
Employer-based health care also deters creativity and risk-taking among workers. Those who would be otherwise inclined to leave their jobs to form a start-up or try another career are hesitant for fear of losing health insurance. In the words of a clever web ad from Oregon Sen. Ron Wyden, employer-provided health insurance, and thus the employer health deduction, interferes with the “fundamental American right to take a job and shove it.”
The hesitancy of organized labor about removing the tax exemption is understandable. The impulse to protect the incomes and health benefits of union members is strong, and usually beneficial. However, it is unlikely that the construction workers that are members of LIUNA would be affected by even the most stringent cap on the deduction that Congress is considering. The cap would keep the deduction for plans offering up to 30 percent more coverage than even members of Congress currently receive. Even if eliminating the deduction did affect their insurance, the benefits of the change in increased progressivity, improved cost-saving and health outcomes, and a less employer-dependant health system would more than outweigh the tax increase.
Curtailing the employer health deduction is a vital way to pay for a better health care system. It would move away from the broken employer-based health care system, cut wasteful medical spending, encourage entrepreneurship, and be progressive to boot. Limiting the deduction is an all-around good idea. It’s time organized labor got on board.
Dylan Matthews is an intern at The New Republic, a staff writer for Campus Progress, and a sophomore at Harvard University.
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