A proposed tax on high-cost, or “Cadillac,” health insurance plans has touched off a fierce clash between the Senate and the House as they wrestle over how to pay for legislation that would provide health benefits to millions of uninsured Americans.
Supporters, including many senators, say that the tax is essential to tamping down medical spending and that over 10 years it would generate more than $200 billion, nearly a fourth of what is needed to pay for the bill.
Critics, including House members and labor unions, say the tax would quickly spiral out of control and hit middle-class workers, people more closely associated with minivans than Cadillacs.
The tax, which is included in the bill that is to be voted on Tuesday by the Senate Finance Committee, is the one of the few remaining proposals under consideration by Congress that budget experts say could lead directly to a reduction in health care spending over the long term, by prompting employers and employees to buy cheaper insurance. Whether it remains in the bill is emerging as a litmus test of the commitment by President Barack Obama and his party to slowing the steep rise of medical expenses.
It is also a prime example of the major differences still to be bridged by Democrats as the legislation advances to full debate in both houses.
Under the Finance Committee bill, the tax would be imposed beginning in 2013 on health plans with total premiums exceeding $8,000 for individuals and $21,000 for families. It would be paid by insurers, who would be expected to pass along the cost to customers.
Critics say that would mean an increase in premiums or in out-of-pocket expenses for employees, raising medical costs for individuals and families.
Supporters say the more likely prospect is that employers will take steps to avoid the tax, putting pressure on insurers to offer cheaper coverage and slowing the rise in medical costs for everyone. That in turn will mean higher wages, they say, because employers will be spending less on health benefits.
In a preliminary estimate, the Congressional Joint Committee on Taxation has said that in 2013, 14 percent of family health policies and 19 percent of individual policies would be hit by the tax. By 2019, 37 percent of family policies and 41 percent of individual policies would face it.
The proportion of people being subjected to the tax would rise over time because although the initial thresholds for the tax would increase with inflation, premiums are expected to continue to rise at an even faster clip.
Many Democratic senators, led by the Finance Committee chairman, Max Baucus of Montana, like the idea of the tax, and Obama embraced it in his speech to Congress on Sept. 9.
“This reform will charge insurance companies a fee for their most expensive policies, which will encourage them to provide greater value for the money,” the president said then. “This modest change could help hold down the cost of health care for all of us in the long run.”