Lawmakers say Senate health care bill could hit feds with new taxes

Two Democratic lawmakers wrote to House Speaker Nancy Pelosi, D-Calif., on Tuesday to express concern about the Senate Finance Committee's health care reform bill, saying the legislation could impose significant health care insurance taxes on federal employees.

Virginia representatives Gerry Connolly and Jim Moran have taken issue with an excise tax included in health care reform legislation crafted by Senate Finance Committee Chairman Max Baucus, D-Mont. The provision in the bill would levy a 40 percent tax, beginning in 2013, on the overall value of health insurance plans that cost more than $8,000 for individuals and $21,000 for families. Though the tax will be imposed directly on insurers, most analysts believe employers and consumers ultimately will bear the price of the tax, as insurance companies will charge more to make up for the fee.

"Just like all Americans, federal employees and retirees are struggling to keep up with the rapid growth in health care costs," the letter said. "Protecting and improving the benefits -- particularly the health benefits -- of federal employees is critical to our success in retaining and recruiting a skilled workforce."

The excise tax is designed to encourage employers to find cost savings in the health care plans they buy for their employees, either by negotiating with insurance providers to reduce costs, or by purchasing cheaper insurance. But the government might have to find a way to bring down the price of health insurance for federal workers so insurance plans can avoid being subject to the tax in the first place.

Connolly and Moran asked the Congressional Research Service to determine how the tax could affect plans included in the Federal Employees Health Benefits Program -- plans that already represent a significant value both to federal workers and to agencies as recruiting tools. The research found, according to Connolly and Moran, that $8,000 is equivalent to $6,500 in 2009 dollars. The average FEHBP plan already costs $6,000; if the value of dental and vision coverage increases are included in that figure, the price jumps to between $6,303 and $6,697. So, by some calculations, FEHBP plans already are above the threshold designated for the excise tax, should it be enacted. And federal employees' contributions to their Flexible Spending Accounts likely would be counted as part of the total cost, pushing them even further above the excise tax threshold, the lawmakers argued.

Because the costs of the Federal Employees Health Benefits Program are likely to continue to increase, the letter said, citing this year's average 8.8 percent increase in the cost of FEHBP plans, the excise tax could hit federal employees particularly hard.

"We and members of the administration have urged the public, including more than 2 million federal employees, that if individuals or families like their current health care coverage, they will not have to change it," Connolly and Moran wrote. "The current proposal from the Senate Finance Committee could undermine that tenet of health insurance reform."

The Financial Services bill is not the only health care legislation to raise questions about potential reform's effect on federal employees' health care benefits. In July, House Republicans asked Rep. Edolphus Towns, D-N.Y., who chairs the Oversight and Government Reform Committee, to hold hearings on whether FEHBP met the requirements for a "qualified health benefits plan" as outlined in the House Democrats' health care bill. Towns declined to hold hearings saying that FEHBP would have a five-year grace period to make any necessary adjustments.