GOP Senators’ New Health Overhaul Plan Would Tax Some Workers’ Benefits

A health care overhaul plan released Monday by three Senate Republicans may reveal how the party will handle the issue for the 2014 elections and beyond.

Photo by Karl Eisenhower/KHN

Sens. Orrin Hatch of Utah, Tom Coburn of Oklahoma and Richard Burr of North Carolina unveiled a legislative framework that would scrap much of the 2010 health law, replacing those provisions with ones the lawmakers say will increase consumer choice and reduce health care costs.

“With our plan, we’ve shown once again that by empowering Americans — not Washington — with the right tools and information, they will make the best informed health care decisions for themselves,” Hatch said in a statement.

It would repeal the health law’s requirements on individuals and employers to purchase health care coverage. It would scrap the law’s Medicaid expansion and give states more control of Medicaid, scale back the size of tax credits to help people buy health insurance and scrap the law’s new taxes and fees. It would also eliminate the health insurance marketplaces set up under the federal health law.

Insurers would still be prohibited from imposing lifetime limits on coverage. Plans would be required to offer dependent coverage up to age 26, although a state could opt out of enforcing that provision on the insurers it regulates.

Insurers could charge an older person no more than five times what they charge a younger person — the health law only allows insurers to charge up to three times more to older people — but states could impose rating rules that were more or less restrictive.  Subsidies would be based on age  — not income — and be available to those up to 300 percent of the poverty threshold, not 400 percent as the health law does.

Individuals who maintain continuous coverage could not be charged more for a pre-existing medical condition, but if they have a gap in coverage they could be subject to medical underwriting, where insurers could charge them more for coverage based on their medical history.

The proposal would not change the long-standing practice of allowing employers to fully deduct the cost of providing health insurance. However, some employees getting very generous coverage would have to pay taxes on the value of some benefits. The proposal would cap the tax exclusion for an employee’s health coverage at 65 percent of an average plan’s cost.

“This step is necessary and important, because economists across the political spectrum largely agree that the current distortion in the tax code helps to artificially inflate the growth in health care costs,” according to the Senate GOP blueprint.

Senate GOP aides said the plan’s drafters did not want to discourage employers from offering health insurance, but instead wanted to create pressure from employees to reduce the cost of that coverage.

President Barack Obama’s health law includes a so-called Cadillac tax on plans that cost more than $10,200 for an individual or $27,500 for a family.  In 2018, those plans will incur an excise tax of 40 percent on the amount of the premium that exceeds those thresholds.

Hatch, Coburn and Burr would keep the health law’s Medicare policy changes and its $716 billion in provider cuts on the idea that any discussion of Medicare changes “should be considered in the context of reforms to improve Medicare and improve its insolvency,” according to the proposal.