This Tax Might Save Health Reform

Last week President Obama opened the door to taxing insurance companies. This week Democrats are preparing to walk through it. Could this be the sword that cuts the Gordian Knot of health care reform?

First let's review the news, from the Wall Street Journal (italics mine):

Senior House Democrats, seeking a health bill acceptable to rank-and-file lawmakers, are warming to a plan to tax insurers that sell high-end health policies.

So far the idea has attracted more support in the Senate, where the Finance Committee is weighing a proposed levy on insurance companies offering individual plans valued at more than a certain limit, likely $25,000 or higher. The insurers would have to pay an excise tax on such policies, and the cost would likely be passed on to employers. While the structure isn't clear, the tax would likely fall on the portion of any policy exceeding the mandated limit.

Adding the proposed tax -- which would raise as much as $180 billion over ten years, according to people familiar with the plan -- would allow the House to shrink the direct surtax on wealthy households included in the current version of its bill. That might widen support among wary Democrats.

It seems inevitable to me that passing a moderate tax along to employer-provided health care is the best way Obama will be able to convince moderate Democrats that he's serious about "bending the curve" of health care costs in the coming decades. The Congressional Budget Office, charged with "scoring" the long-term fiscal impact of proposed health plans from the Senate and House, has essentially reported back to the administration that nothing it had proposed could truly control the exploding costs of national health care.

What's more, it's clear that some Democrats representing more affluent districts were nervous about going to their richer constituents saying essentially: "The administration is going to raise your taxes for a program that almost certainly won't benefit you in the short term." That's not a good way to get reelected. A moderate rich insurer tax -- which, as the article points out, will be passed onto employers -- probably represents Obama's best shot at bringing down the cost of health care without alienating conservative Democrats. Of course, it must be said, this proposal, valued at $180 billion over ten years, is still peanuts compared to the long term cost of health care.