During today’s mark-up session of the HELP Committee’s health care proposal, Republicans introduced at least seven amendments designed to lower the subsidies available to Americans who purchase coverage through the Exchange. Sens. Mike Enzi (R-WY) and Judd Gregg (R-NH) both argued that Americans above 250 percent of the Federal Poverty Level (FPL) — or $45,775 for a family of 3 — could easily afford health care coverage:

- Enzi 200: To eliminate subsidies for those above 250 percent of poverty
- Enzi 201: To eliminate subsidies for those above 250 percent of poverty
- Enzi 202: To provide for reductions in subsidies
- Enzi 211: To limit subsidies to those below 250 percent of poverty.
- Enzi 251: To limit subsidies to those below 250 percent of poverty
- Gregg 223: To limit subsidies to those below 200 percent of poverty.
- Roberts 203: Limiting Premium and Cost-Sharing credits to people below 200% of FPL

Watch a compilation:

In reality, millions of Americans at about 250% FPL are struggling to afford skyrocketing health care costs. A recent study concluded that medical debt contributed to 62 percent of U.S. personal bankruptcies in 2007 — and 78 percent of bankruptcy filers had health insurance but “still were overwhelmed by their medical debt.“ One in five Americans had trouble paying their health care bills in 2007 and even moderate levels of out-of-pocket spending — spending that is as low as 5 or 10 percent of family income —created medical bill problems.

Health care reform must end medical debt and medical bankruptcy, but Republican affordability measures are simply insufficient. The question of affordability is two-fold: which income levels do we subsidize and how much subsidies should the eligible families receive. While the cost of living varies widely across the country, on average, a family of three would need at least $37,919 – or about 200% FPL – to afford their basic necessities not including health care costs. So families up to 200% need to be subsidized, but who else?

Well, researchers suggest that families that spend more than 5-9% of their gross income on health care begin confronting affordability problems. As Karen Pollitz points out, “depending on what premiums are charged for qualified health benefit plans” subsidies capped above a certain level “may prove to be insufficient to ensure affordable health care for all Americans.” Congress “might consider instead a rule that no individual or family will have to pay more than 10 percent of income on health insurance premiums….cutting subsidies off entirely at an arbitrary income level can leave families vulnerable,” she says. Families at approximately 500% FPL ($110,250 for a family of four), however, can typically afford the cost of coverage.

Of course, the entire goal of reform is to slow the growth of health care costs and lower premiums for families. In this sense, subsidizing coverage — that is, making sure that every family can afford to access needed services — is a way of saving money in the long haul. After all, the billions we’re spending on subsidies is a small fraction of the $40 trillion we’re projected to spend on health care in the next ten years if we fail to slow the growth of spending.

This week, at least two separate articles — on in the New York Times and the other in the Washington Post — argued that the controversy surrounding the recent compromises between the health insurance industry and the Obama administration actually retarded reform efforts:

- The short-term political benefits are clear. Senior White House officials say the deals are building momentum that will help propel the health care legislation past potential opponents in the private sector and on Capitol Hill…But some lawmakers said the deals, while seemingly helpful, could raise false expectations by obscuring how much the industry is demanding for its concessions. [NYT, 7/7/2009]

- No single development appeared likely to kill Obama’s signature domestic agenda item, but the relentless barrage of challenges that seemed to hit hourly served to demonstrate why no president since Lyndon B. Johnson has been able to enact large-scale health legislation. [Washington Post, 7/9/2009]

The new deals should be openly scrutinized, but they also suggest that the health insurance industry is betting that the momentum is on the side of reform. As Jonathan Cohn has pointed out, “the drug and hospital industries are making a more important pledge: They are suggesting they will go along with legislation that changes the way they are paid.” Not only do lawmakers now have the industry playing on their side — as a posed to running attack adds — but they have also have $235 billion to invest in the system.

The back and forth we hearing about the details of each agreement is a legitimate consequence of progress. Only those who believed that the legislative process would be a smooth and seamless ride, can interpret the current process as incredibly troublesome. After all, the legislative process will produce many proposals, different amendments and varying coalitions. The challenge, for both conservatives and progressives, is to resist the knee-jerk over-reaction that characterize every minor disagreement or compromise as a death blow to reform. It’s what democracy looks like.

House Ways and Means Committee Chairman Charles Rangel (D-NY)

House Democrats on the Ways and Means Committee are reportedly considering a two percent surtax that “would apply to individuals with adjusted gross income of more than $200,000 and couples over $250,000″ to help finance health care reform. The committee needs to “come up with $600 billion in new taxes to deliver on President Barack Obama’s goal of sweeping changes to the nation’s health care system” and this tax is just one option for raising the needed revenue.

Remember that in order to pay for approximately $1.5 trillion worth of health care reform, most progressives propose a mix of sources, including reducing excessive or wasteful spending in Medicare and Medicaid and modernizing the health system by implementing electronic health records and instituting payment reform. Additional revenue from the employer mandate and new taxes would generate more than $400 billion. This basket of pay-fors provides Congress with a menu of options, making fully financed health care reform more probable.

The proposed surtax would target adjusted gross incomes (AGI), or all earnings before subtracting for itemized deductions and exemptions. According to calculations from Citizens for Tax Justice (CTJ), about 2.4 percent of taxpayers would be affected by the proposed surtax.

The benefits of using a surtax to pay for reform are two-fold:

1) Because it is calculated directly from AGI, the new tax would not add greater complexity to the tax code.

2) It’s fairer than raising the income tax rate, because AGI is inclusive of income from capital gains and dividends, which are taxed at a much lower rate than work income.

Under the CTJ calculations, a household making about $250,000 would see an average tax increase of $536, while a household making $1.5 million would see an increase of almost $19,000. The tax would raise about $375 billion over the next decade (the House version is only looking for approximately $250 billion), and “would target those Americans who received the bulk of the benefits from the tax cuts enacted during the Bush years.”

However, unlike the Obama administration’s proposal to limit itemized deductions for the richest Americans in order to raise money or capping untaxed employee health benefits, a surtax doesn’t address already existing problems in the tax code. As Matthew Yglesias explained, “when possible, it’s better to raise money by broadening the tax base — curbing loopholes, deductions, and exemptions — than by simply raising the rates.” If a surtax is seriously being considered by Congress, it makes little sense to simultaneously dismiss the proposals to limit deductions or cap benefits out of hand.

– Pat Garofalo and Igor Volsky