Jacob Sullum

Obama's health insurance tax doesn't go far enough.

President Obama's proposed tax on especially expensive medical benefits, which he last week agreed to modify in response to complaints from labor unions, breaks at least three of his promises. It still may be the best aspect of a health care plan that otherwise does little to control costs, ostensibly one of Obama's main goals.

As approved by the Senate, the 40 percent excise tax applies to medical coverage costs above $8,500 a year for individuals and $23,000 for families. Although those cutoffs currently are far above average, they would rise more slowly than insurance premiums, and the Joint Committee on Taxation (JCT) estimates the tax would affect nearly a quarter of Americans with employer-provided coverage by 2019.

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This bracket creep is a feature, not a bug, because the aim is to reduce the incentive that encourages employers to provide tax-free medical benefits instead of higher wages. The more people are covered through work, and the more generous their coverage, the more they are insulated from the costs of their health care choices, a situation that impedes competition and feeds inflation.

Obama's excise tax would nibble at the edges of this problem by encouraging employers to cut back on the most expensive health plans and shift the money they save to wages. In fact, the JCT projects that more than 80 percent of the money raised through this provision during its first decade would come not from the excise tax itself but from taxes on higher wages.

Which brings us to Obama's broken promises. While running for president, he repeatedly vowed not to raise taxes on families earning less than $250,000 a year. Yet the JCT's numbers indicate that most of the money raised by the excise tax would come from households in that income group.

Last year, Obama repeatedly assured the public that his health care plan would not affect people who are happy with their current coverage. "No matter how we reform health care," he said in a June speech to the American Medical Association, "we will keep this promise: If you like your doctor, you will be able to keep your doctor. Period. If you like your health care plan, you will be able to keep your health care plan. Period. No one will take it away. No matter what."

Jacob Sullum

Jacob Sullum is a senior editor at Reason magazine and a contributing columnist on Townhall.com.
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