In the latest democratic proposal to reform the nation’s healthcare system, Senator Baucus has proposed for an excise tax on the most expensive insurance plans to pay for about one quarter of the estimated $774 billion cost.  The new tax is also intended to discourage the overly generous coverage that is blamed for the reckless spending on healthcare.  However, while touted as a tax that only impacts the most affluent Americans, in reality it is likely to impact many middle class workers.  
The proposal would impose a 35% excise tax on all insurers selling a plan that costs more than $21,000 annually for family coverage or $8,000 for single coverage.  While the national average premium for a family policy is only $13,375 per year, there is significant variance in different regions of the country with many, especially in the Northeast, that are much higher than that.  With an annual limit of $21,000 per year, this is only $1,750 per month.  Additionally, the cost of benefits would not just include medical premiums, but would include related benefits such as dental coverage and money contributed to flexible spending account plans.  At this level, it is estimated that one in every ten plans would be subject to the new tax.  Given the rate of healthcare inflation, this number would increase each year as more and more plans exceed the threshold. 
While Senator Baucus said he may consider increasing the limits in certain regions with higher costs, there is no guarantee.  In the meantime, many small businesses and union plans will likely be subject to the tax.  Because they have fewer employees to spread the risk of older or sicker employees and have less purchasing power than large corporations, small businesses often pay more for premiums.  Consequently, 14% of small business plans would potentially be subject to the new tax.  Similarly, union plans often cover older employees and retirees who have not yet qualified for medicare, causing their premiums to be higher. 
This proposed new tax will continue to be debated in Congress along with other provisions of the healthcare reform bill.  However, it is important to note that President Obama supports this new tax. He recently defended the new tax saying, “I do think that giving a disincentive to insurance companies to offer Cadillac plans that don’t make people healthier is part of the way that we’re going to bring down health care costs for everybody over the long term.”
Source:  NYTimes – 9-21-09