By Don McIntosh
The top health care lobbyist for the national AFL-CIO says efforts to repeal Obamacare’s “Cadillac tax” may be gathering momentum. The Cadillac tax, which is due to take effect in 2018, is a 40 percent excise tax on high-cost employer health benefits. It was the part of the Affordable Care Act that labor union leaders most objected to when the bill was making its way through Congress in 2010, and they’ve have been calling for its repeal ever since.
The tax was sold as a way to put a lid on premium increases — and cap what is now an open-ended tax subsidy for employer-paid health coverage.
Here’s why it makes sense … in theory. What an employer pays for employee health benefits isn’t taxed. If that money went instead to wages or profits, it would be subject to income and payroll taxes. So there’s a cost to the U.S. Treasury for every dollar employers spend on employee health benefits. But if the federal government levies a punitive tax on every dollar they spend on health benefits above a certain limit, employers would find a way to keep health benefit spending below that limit. According to the theory, that can be done without hurting workers, since the reason premiums are so high is that benefits are too generous. Workers pay too little for their healthcare, the theory goes, and that causes them to use unnecessary medical services. It’s an argument that appeals to health policy wonks … and Ivy League-trained economists working for the White House.
Out in the real world, workers with employer-provided coverage are already paying higher deductibles and copays than ever. Deductibles have gone up by about $100 a year since Obamacare passed in 2010. And any employer spending heavily on health benefits has already tried to put a lid on costs.
Obamacare’s Cadillac tax will start on any employer health expenditures above $10,200 a year for single coverage and $27,000 for family coverage. Those amounts include the total insurance premium, regardless of who pays it, plus any employer contribution to a Health Savings Account.
The Cadillac tax may in fact stop employers from spending above those limits, but employers will accomplish that by shifting the burden to workers. The number one way employers can reduce premiums is by increasing deductibles, co-pays and coinsurance paid by workers.
Union employers can’t wait until 2018 to worry about it. They pay for health benefits under multi-year union contracts that are already being negotiated. How to avoid the Cadillac tax was a big factor in the tough bargaining that nearly led to an ILWU West Coast port shutdown. In Longview, Washington, 800 paper mill workers struck for 12 days last month after their employer, Kapstone, imposed health benefit cuts in the name of avoiding the tax.
[pullquote] Economic theory implies that the money employers save on health benefit costs as a result of the tax will be passed through to workers as higher wages.” — Jason Furman, Obama’s top economic adviser [/pullquote]But the Obama Administration appears to be standing firm in defense of the Cadillac tax. Jason Furman, Chairman of the White House Council of Economic Advisers, defended the Cadillac tax in an Oct. 7 speech at the Brookings Institution think tank, saying it will not only reduce health care costs and lower future federal deficits, but even boost workers’ wages and lead to more jobs.
“Economic theory implies that the money employers save on health benefit costs as a result of the tax will be passed through to workers as higher wages in the long run,” said Furman — a Harvard-educated multi-millionaire and son of a wealthy New York real estate investor. Of course, economic theory also predicts higher wages as unemployment drops, and that’s not happening either.
Kaiser Family Foundation CEO Drew Altman, in an Oct. 2 Wall Street Journal op-ed, predicts that the Cadillac tax will hit low-income workers and the chronically ill hardest — because it will cause employers to increase deductibles and co-pays. And actuaries from the consulting firm Milliman project that the tax will unfairly impact employers that happen to have lots of older workers, or that are located in the areas with the highest-price health care, like the Northeastern United States. One recent Milliman study reported that nearly 70 percent of variance in health insurance premiums is explained by geographic location, while just 6 percent is due to the comprehensiveness of the benefits.
But AFL-CIO legislative representative Tom Leibfried points to signs that the Cadillac tax is losing support. Democratic presidential candidates Bernie Sanders and Hillary Clinton are in favor of repeal. So is newly installed Republican House Speaker Paul Ryan. And at least three pending bills in Congress would repeal it. A bill sponsored by Connecticut Democrat Joe Courtney, has 167 co-sponsors, including 20 Republicans [In Oregon, Peter DeFazio, Suzanne Bonamici, and Greg Walden are co-sponsors.]. The “Ax the Tax on Middle Class Americans’ Health Plans Act” by New Hampshire Republican Frank Guinta’s has 106 cosponsors, all Republicans. And in the Senate, a bill by Sherrod Brown (D-Ohio) to repeal the Cadillac tax has 13 co-sponsors.
Congress is too dysfunctional these days to pass stand-alone bills, but Leibfried thinks the proposal may gain traction as part of a larger bill later this year, such as a bill on “tax extenders.”