Taxing Health Insurance

Oct 6, 2009

by John Goodman

Under the Senate Finance Committee’s modified chairman’s mark, beginning in 2013, all plans (with a few exceptions) that cost more than $8,000 for individuals and $21,000 for families would be subject to a tax of 40% on the excess. Although the tax would be imposed on insurance providers and employers, the burden would be passed on to consumers. This is from the Joint Economic Committee Minority:

If companies seek to maintain absolute profit levels by increasing premiums, the high cost tax of 40% will not only add $1,600 to the cost of a $25,000 plan, but the added $1,600 to the cost of the plan will then be subject to the high cost tax, which will add another $640 to the plan’s cost. This cycle of tax increases followed by premium increases will result in a total increase of $2,667 to a $25,000 plan. Under this scenario, the result is that the stated tax rate of 40% would translate into an effective tax rate of 67%.

John Goodmans health policy blog