Ideas for Financing Health Reform: Revenue Measures that Also Reduce Health Spending
Statement for the Senate Committee on Finance
Revenue Measures that Also Reduce Health Spending
Thank you for this opportunity to address the committee on approaches to funding health reform. I am a Vice-president with The Lewin Group with 25 years experience in studying and analyzing proposals to reform health care and extend health insurance to the uninsured. We are committed to providing independent, objective and non-partisan analyses of policy proposals. We do not advocate for or against legislative proposals.
Health reform can be funded with new revenues and savings to existing federal programs. In this analysis we examine two tax-based options that would both raise revenues and reduce health spending. These include placing limits on the tax exclusion for employer health benefits and a large increase in the tax on tobacco products. We also discuss potential savings to existing federal safety-net programs under expansions in coverage that could be redirected to help pay for health reform.
We estimate that these three proposals would raise about $1.25 trillion in revenues and savings to federal programs over the 2010 through 2019 period. This is roughly equal the amount of funding required to pay for the health reform program proposed by President Obama in the
2008 campaign ($1.17 trillion). These provisions would also reduce national health spending by about $461.0 billion over this period.
Changes in the Tax Exclusion for Employer-Sponsored Insurance (ESI)
Changes in the tax exclusion for employer-sponsored Insurance (ESI) would provide new revenues for reform while reducing health spending. Under current law, the cost of ESI is exempt from taxation as income to the individual for purposes of both the income tax and payroll taxes for Social Security and Medicare. For workers in Section 125 plans, the employee contribution is also tax exempt, and many workers have a tax exempt flexible spending account for payment of uncovered health expenditures.
These tax breaks will represent a loss of federal tax revenues of about $297.4 billion in 2010. This includes $173.5 billion in personal income taxes and $100.1 billion in Social security and Medicare payroll tax payments. About 40.5 percent of all tax expenditures will go to families with incomes of $100,000 or more, while only about 2.3 percent would go to families with incomes below $20,000.
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This article was prepared for general information purposes only to permit you to learn more about Ingenix Consulting and its services. It is not intended as a basis for decisions in specific situations, may not be current, and is subject to change without notice.
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