Taxing Fatty Foods Or Health Insurers Gains Traction

Lawmakers are considering two new taxes to help pay for a health care overhaul: a tax on fatty foods and taxing insurers on so-called Cadillac plans. Both proposals were scrutinized in news articles.

Forbes reports that while "chances are slim," a fat tax could "help offset the cost of ObamaCare." A study released Monday by the Urban Institute and the University of Virginia found that "a 10% excise or sales tax on fattening foods could raise $522 billion over the next 10 years. A 20% tax could raise $937 billion. Among its other uses (like paying down the deficit), that money could be used to defray the costs of health care reform or to curb the rise in obesity."

But one group is "waging a multimillion-dollar media campaign in the Washington, D.C., area to stomp out any thoughts of food or drink taxes." Americans Against Food Taxes is a coalition of industry organizations that includes the National Restaurant Association, the American Beverage Association and the National Grocers Association, as well as some individual companies. The group argues that such taxes are regressive. But "lobbying aside, any effort to raise taxes on unhealthy foods and beverages is likely to face significant challenges. First among them: defining 'unhealthy.' another concerns would involve implementing the tax itself" (Wingfield, 7/27).

The Urban Institute study recommends that "facing the serious consequences of an uncontrolled obesity epidemic, America's state and federal policy makers may need to consider interventions every bit as forceful as those that succeeded in cutting adult tobacco use by more than 50%," The Los Angeles Times reports. "If anti-tobacco campaigns are to be the model, those sales taxes could be hefty: The World Health Organization has recommended that tobacco taxes should represent between two-thirds and three-quarters of the cost of, say, a package of cigarettes; a 2004 report prepared for the Department of Agriculture suggested that, for 'sinful-food' taxes to change the way people eat, they may need to equal at least 10% to 30% of the cost of the food" (Healy, 7/27).

Meanwhile, "The powerful Senate Finance Committee has reportedly pivoted from taxing workers to embracing a plan to tax the insurers who offer the most expensive health-insurance plans," Time reports. "

One problem with the plan is that "most large companies (1,000 employees or more) are self-insured, with a private health-insurance company merely acting as the benefits administrator. In these cases, Kerry's proposal would levy the excise tax directly on employers, whose extra cost burden could be (and many argue most certainly would be) passed onto employees in the form of higher contributions to premiums, higher deductibles and higher co-pays." In addition, "the term 'Cadillac health plan' is a tad misleading. Aside from a small number of corporate executives - like the CEO of Goldman Sachs who reportedly enjoys a health plan costing $40,543 a year - many of the Americans with health-insurance plans substantially above the national average (which is around $13,000 for a family of four) are state employees and union members. ... But the vast majority of 'Cadillac' plans are those that typically offer consumers relatively low co-pays for doctor visits and generic and name-brand prescription drugs and preset and relatively affordable out-of-pocket costs for expenses like hospitalizations" (Pickert, 7/28).

Another proposal is to tax employees for their Cadillac plans, rather than insurers. In a separate article, Forbes asks how many people actually have those gold-plated insurance plans. "Looking at Goldman Sachs, the company that Axelrod referred to specifically over the weekend, the top five executives do indeed get gaudy benefits. According to the latest proxy, four of the five top managers there get health plans worth $40,543 and a fifth gets one valued at $47,837." But "as with many things Goldman, the health plan is likely an extreme outlier. Most companies don't report the exact value of their executives' benefits, but they seem to be far less." And "Congressional testimony by the staff of Joint Committee on Taxation hammered home the point in May that targeting only the best-compensated employees' benefits will not raise much money" (Whelan and Ruiz, 7/27).

Related Story: KHN's Julie Appleby on tax options to pay for a health overhaul.