Dems Squabble Over Who Will Pay

President catches party off guard with spending limits

By Carrie Budoff Brown and Patrick O'Connor
|  Sunday, Sep 20, 2009  |  Updated 11:30 PM CDT
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Obama's Littlest Constituents

How much did you say this was going to cost Mr. President?

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President Barack Obama caught at least one top Democrat by surprise when he told Congress its health care bill should cost less than $900 billion — House Speaker Nancy Pelosi.

The California Democrat told colleagues afterward that she barely registered the number until the president finished his speech to the joint session of Congress, members and aides said last week.

With that one statement, Obama served notice that he wants the final compromise to come in at less — $100 billion to $200 billion less — than what the House had in mind, cuts that could lead to less coverage and smaller subsidies to buy insurance.

It shouldn’t shock anyone that the health care fight has boiled down to a clash over money — or, more particularly, who pays for what? The problem is that Democrats don’t see eye to eye on who’ll foot the bill, setting up yet another battle inside the party over the final shape of the legislation.

Obama’s five back-to-back appearances on the Sunday talk shows also put on display an emerging line of attack from Republicans and other critics — that health reform is really a hidden tax increase on the middle class. Critics say that’s because it requires people to buy insurance or pay a fine and because they believe any tax hikes on industry will simply be passed on to consumers.

Obama disputed the charges, saying no one considers the requirement to buy auto insurance a “tax.” He said fast-rising health insurance premiums are like a tax increase on Americans now but that reform would trim costs.

He also denied that the proposals contradict his campaign promise not to raise taxes on the middle class. “I absolutely reject that notion,” he told George Stephanopoulos on ABC’s “This Week.”

In its current form, the House bill asks the wealthiest Americans to subsidize coverage for lower-income people who don’t have insurance with a so-called millionaires’ tax. That’s unlikely to fly in the Senate.

In the Senate, Finance Committee Chairman Max Baucus (D-Mont.) has been criticized by Democrats and Republicans alike for asking some middle-class Americans with top-tier insurance — the so-called Cadillac plans — to help pick up the tab. Critics, including some liberal Democrats, complain that Baucus didn’t set aside enough money to help people purchase mandatory insurance coverage.

Then there’s Obama, who has been supportive of a tax on couples making more than $1 million and, on Sunday, defended the idea of taxing insurers who offer the high-end insurance plans.

As the Senate Finance Committee begins its consideration of the bill on Tuesday, Democrats and Republicans will push for major changes to the tax on “Cadillac” insurance coverage. Sen. John Kerry (D-Mass.), for example, has proposed an amendment lifting the threshold at which family plans would be taxed from $21,000 to $25,000. Others, including Sen. Olympia Snowe (R-Maine), want to change the index.

Right now, the tax code encourages consumers to buy expensive health insurance because the value of those plans is not taxed. The 35 percent excise tax Baucus wants to impose on high-end insurance plans is an attempt to force behavioral changes in the system.

So as employers steered away from the Cadillac plans, the money they saved by shifting to lower-cost alternatives would be channeled into wages, according to Finance Committee aides, who have been briefed on an analysis by the Joint Committee on Taxation and the Congressional Budget Office. That means much of the $215 billion in tax revenue this proposal would raise over the next 10 years would come from payroll taxes resulting from higher wages, not from taxes paid by insurance companies, aides said.

Already, critics are developing a plan of attack: Workers might see higher wages but also less generous health insurance, which would mean higher out-of-pocket costs that would eat up those higher wages.

 

Lawmakers face incredible political pressure to shift away from this approach. The tax could scoop up more and more middle-class families as time goes on, since it is indexed for inflation, which rises more slowly than health care costs. The tax also would hit older individuals who are charged higher premiums because of their age but do not necessarily receive Cadillac benefits.

“That is the concern: Does it go beyond the obvious?” said Senate Majority Whip Dick Durbin (D-Ill.), who prefers the millionaires’ tax.

The early maneuvering on the tax is only a taste of the wrangling that lies ahead.

A Finance Committee aide said the bipartisan negotiating group initially looked at setting the cap at about $13,000 for a family plan. As part of a compromise, the group bumped up the threshold to $21,000 — but indexed it for inflation, meaning more people could feel the impact of the tax.

“Does that create some pain? Yes, it does,” Sen. Kent Conrad (D-N.D.), a Gang of Six member who supports the insurance tax. “People want to see real pain? Stay on the current course,” with health care costs rising unchecked, he said.

Sen. Chuck Grassley of Iowa, one of three Republicans who huddled with Baucus all summer to negotiate a compromise, said the excise tax was one of the issues “not resolved in a bipartisan fashion” and that he would push for alternatives.

“There are innumerable sources of revenue,” Grassley said, adding that getting the package down to $750 billion, as he had hoped, would eliminate the need for the excise tax. Baucus said his bill would cost $856 billion over 10 years, but the CBO put the cost at $774 billion.

Pelosi’s challenge is a bit more straightforward: She needs to cut the cost of her bill. Party leaders huddled with White House officials and Health and Human Services Secretary Kathleen Sebelius last week to talk about the president’s $900 billion request, members present said.

The question now is whether Pelosi cuts the price tag before the House bill comes up for a vote or later during negotiations with the Senate. The speaker wants to preserve as much leverage as possible for those negotiations, but rank-and-file resistance could make that tough.

The speaker also needs to decide whether families making more than $1 million, or individuals making more than $500,000, should be asked to pay for the bill.

The first concern is that this surtax on the top wage earners wouldn’t have a direct or indirect impact on the health care industry. The second is that it would be indexed to wage inflation, not the much higher increase in health care costs. And finally, Democrats would probably need to impose a tax on the wealthy when the Bush tax cuts expire.

The speaker and her No. 2, Majority Leader Steny Hoyer (D-Md.), are both open to the Baucus proposal to tax high-end insurance plans, provided the finance chairman makes changes to shield lower- and middle-income families from whatever fees insurance companies pass along to them.

“It’s good health policy, and it’s good tax policy,” Hoyer said of the Baucus proposal.

But Ways and Means Committee Chairman Charles Rangel (D-N.Y.), who drafted the surtax, doesn’t want to take it out of the bill. And since the president and the speaker have both promised to offset the costs of any programs created by the bill, it will be hard to find a new source of revenue that accounts for roughly half of the $1 trillion price tag.

Whether or not the surtax stays in the House package, authors will probably need to cut some subsidies to bring the cost down.

“The House, in effect, has plenty of offsets,” said Paul Van de Water, a health care expert with the Center on Budget and Policy Priorities. “They just have too many subsidies, at least by the $900 billion standard Obama laid out.”

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