How We Will Pay for Health Care Reform

Health care reform will pass. Not because Max Baucus is the next coming of Ted Kennedy, or because President Obama is the next coming of LBJ, or because Rahm Emanuel is the next coming of Rambo. It will pass because it has to, because health care is the centerpiece of a landslide-elected president's agenda, because allowing it to die would be an astonishing allowance of weakness on the party of a super-majority, and because Democrats know that nothing makes your party look like a winner more than a Rose Garden celebration in which you proclaim yourselves (rightly or wrongly) authors of the most important piece of legislation in a generation.

But how will health care reform pass? It's all about the Benjamins.


Paying for health care reform is the most important part of passing health care reform. How will we pay? Here's the equation that's beginning to circulate the widely read health care blogs, if not the widely spaced Capitol hallways. Tax on expensive health insurance plans (but weaker than proposed) + Surtax on richest incomes (but weaker than proposed) + Small tax on sugary drinks = The compromise that will pay for health care reform. Ezra Klein and Jon Cohn are beginning to see the finance side of health care come into focus on the Hill. I think the equation makes sense because it's a predictable combination of disparate, workable ideas coming together to be watered down.

The Senate Finance bill from Baucus is key. To raise money it leans on an excise tax on expensive health care plans. But labor hates the idea, because (1) they've fought tooth and nail to secure these "Cadillac" plans and (2) many of them are older and working physically demanding jobs that require more comprehensive care. The excise tax on expensive plans could also eat into middle class earnings because some states like New York and New Jersey have expensive medical costs across the board. So the excise tax will almost certainly be ratcheted back.

But something has to fill that space. Enter the House of Representatives' health care bill, which prefers to lean on the rich and proposes a surtax to move the income tax rate on the top bracket up about 3 percentage points. But that too will almost certainly be ratcheted back by senators worried about playing with the "T" word in the slog of a recession. As for the soda tax, I've seen it pop up here and there, and I've always thought that a small sugar tax would be a fine idea, even though it's going to raise revenue in the realm of dozens, rather than hundreds, of billions of dollars over 10 years. All in all, I would not be surprised to see these three elements come together to form part of -- if not the heart of -- the plan to pay for a trillion-dollar health care plan.

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Derek Thompson is a senior editor at The Atlantic, where he writes about economics, labor markets, and the entertainment business.

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