Next tar­get: tax breaks for em­ployer plans

Modern Healthcare - - NEWS - By Shelby Liv­ingston

“Why would an em­ployer want to pay for the health ben­e­fit if the gov­ern­ment is will­ing to pay” with a tax credit? JAMES GELFAND Se­nior vice pres­i­dent of health pol­icy ERISA In­dus­try Com­mit­tee

Em­ployer and busi­ness groups are shift­ing their lob­by­ing ef­forts from re­peal­ing the Af­ford­able Care Act’s un­pop­u­lar “Cadil­lac” tax to fight­ing GOP pro­pos­als to chip away at the tax break on em­ployer-pro­vided health in­sur­ance.

Cap­ping the tax break, they say, would cause em­ploy­ers to of­fer skimpier ben­e­fits, and some would stop of­fer­ing cov­er­age al­to­gether. That would erode the em­ployer-spon­sored health in­sur­ance mar­ket, where 178 mil­lion Amer­i­cans get their health cov­er­age.

But men­tions of tax re­form led by a GOP-con­trolled Con­gress has op­po­nents gear­ing up for their big­gest and po­ten­tially most ex­pen­sive bat­tle yet. In the last two weeks, leaked drafts of the House Repub­li­can bill to re­peal the ACA showed law­mak­ers plan to cap the tax breaks on em­ployer-spon­sored health in­sur­ance to pay for the re­place­ment health­care law. It would be the sin­gle source of rev­enue to pay for the new age-based tax cred­its that would re­place the ACA’s sub­si­dies.

Cap­ping the tax break is “not a pol­icy that’s good for work­ers and not a pol­icy that’s good for em­ploy­ers,” said James Gelfand, se­nior vice pres­i­dent of health pol­icy for the ERISA In­dus­try Com­mit­tee, a lob­by­ing group for em­ployee ben­e­fit is­sues.

But the idea of cap­ping the tax break, or do­ing away with it en­tirely, is a fa­vorite GOP tax re­form strat­egy that’s been floated sev­eral times since the 1980s. To­day both em­ploy­ers’ and em­ploy­ees’ con­tri­bu­tions to the cost of health in­sur­ance are ex­cluded from fed­eral in­come and pay­roll taxes. That’s a ma­jor in­cen­tive for em­ploy­ers to pro­vide in­sur­ance. But em­ploy­ers ar­gue that tax­ing health ben­e­fits would re­quire them to scale back on the ben­e­fits they of­fer, pass more costs onto em­ploy­ees, or even quit pro­vid­ing in­sur­ance.

“Why would an em­ployer want to pay for the health ben­e­fit if the gov­ern­ment is will­ing to pay” with a tax credit? Gelfand asked.

If em­ploy­ers drop health ben­e­fits, the em­ployer- spon­sored mar­ket could lose its sta­bil­ity, cap op­po­nents say. And while the pro­posal to cap the ex­clu­sion aims to hit overly gen­er­ous health plans, plans with older work­ers or those in states with more ex­pen­sive health­care could ex­ceed the thresh­old even if their health plans aren’t gen­er­ous, said James Klein, pres­i­dent of the lob­by­ing group Amer­i­can Ben­e­fits Coun­cil.

On the other hand, health economists largely sup­port lim­it­ing the tax break, since the un­lim­ited sub­sidy gives con­sumers less rea­son to care about the cost of health­care. Con­sumers with gen­er­ous health ben­e­fits spend more and drive up health­care costs, which leads to higher in­sur­ance costs in the long run, said Martin Gaynor, an economist at Carnegie Mel­lon Univer­sity.

Re­spond­ing to the threat to the sta­tus quo, the Amer­i­can Ben­e­fits Coun­cil’s Al­liance to Fight the 40, a coali­tion of big em­ploy­ers, busi­ness groups and unions— in­clud­ing com­pa­nies such as in­surer Cigna Corp., Exxon Mo­bil, and Amer­i­can Air­lines—launched a new cam­paign to lobby against pro­pos­als to limit the tax breaks on em­ployer-pro­vided in­sur­ance. The coali­tion was ini­tially formed to fight the ACA’s Cadil­lac tax—a widely loathed 40% ex­cise tax on the value of em­ployer-based health pre­mi­ums that ex­ceed spe­cific thresh­olds.

The Coun­cil of In­sur­ance Agents & Bro­kers, a trade group rep­re­sent­ing com­mer­cial in­sur­ance and em­ployee ben­e­fits bro­kers, is also urg­ing the Trump ad­min­is­tra­tion to pre­serve em­ployer-pro­vided ben­e­fits’ tax-ex­empt sta­tus. The group spent $330,000 in the fourth quar­ter of 2016 to lobby Con­gress and the fed­eral gov­ern­ment on pre­serv­ing the tax ex­clu­sion and nix­ing the Cadil­lac tax. Since last April, the lob­by­ing group has spent $1 mil­lion on the is­sues, dis­clo­sures show. It’s un­clear where health in­sur­ers will throw their sup­port. In­sur­ers such as Cigna and the Blue Cross and Blue Shield As­so­ci­a­tion fought the Cadil­lac tax, so it’s likely they will op­pose the cap. Both mech­a­nisms en­cour­age em­ploy­ers to of­fer less gen­er­ous cov­er­age. The Al­liance of Com­mu­nity Health Plans, which rep­re­sents not-for-profit in­sur­ers, hasn’t taken a side be­cause it’s wait­ing on specifics. Amer­ica’s Health In­sur­ance Plans, the in­sur­ance in­dus­try’s largest trade group, did not re­spond to re­quests for com­ment.

The tax-free sta­tus of em­ployer health ben­e­fits dates back to World War II, when the fed­eral gov­ern­ment im­posed strict wage and price lim­its to con­trol in­fla­tion and pre­vent changes that could dis­rupt the work­force.

To get around those wage con­trols, em­ploy­ers be­gan of­fer­ing health ben­e­fits to em­ploy­ees as a form of un­taxed com­pen­sa­tion. The rest is his­tory. Em­ployer-spon­sored health in­sur­ance be­came stan­dard. Em­ploy­ees now ex­pect health ben­e­fits and busi­nesses rely on good ben­e­fit pack­ages to at­tract and re­tain the best tal­ent. Not only that,

em­ploy­ers are able to of­fer this tax-free ben­e­fit in lieu of rais­ing wages.

To­day, em­ployer-pro­vided in­sur­ance re­ceives the sin­gle-largest fed­eral tax break, es­ti­mated at more than $250 bil­lion in 2016, ac­cord­ing to the Con­gres­sional Bud­get Of­fice.

Given that lofty fig­ure, it’s not hard to see why there have been many at­tempts to axe the tax break. Pres­i­dent Ron­ald Rea­gan in 1983 pro­posed lim­it­ing the value of em­ployee health ben­e­fits that could be con­sid­ered tax­ex­empt, but the pro­posal was dropped when the Tax Re­form Act of 1986 was passed. Just like to­day, the “tax cap” pro­posal was met with fierce op­po­si­tion from em­ployer groups and la­bor unions that feared dis­rupt­ing the sta­tus quo in any way would erode the em­ployer-spon­sored ben­e­fit sys­tem.

Pres­i­dent Ge­orge W. Bush in 2007 also sought to do away with the un­lim­ited tax ex­clu­sion and pro­vide in­di­vid­u­als with a stan­dard de­duc­tion for health in­sur­ance. He ar­gued that would en­cour­age more peo­ple to join the in­di­vid­ual mar­ket, which would bring pre­mi­ums down. The Obama ad­min­is­tra­tion also con­sid­ered shak­ing up the tax ex­clu­sion to pay for ex­pand­ing cov­er­age un­der his health­care law.

Ul­ti­mately that didn’t hap­pen, and the ACA’s Cadil­lac tax was born as a sort of mid­dle ground. The Cadil­lac tax was sup­posed to go into ef­fect in 2018 but was de­layed un­til 2020 thanks to op­po­si­tion from em­ployer and la­bor groups. Groups such as the Al­liance to Fight the 40 are still bat­tling the tax, but ob­servers as­sume it will go away with ACA re­peal.

The rev­enue that would have been raised by the Cadil­lac tax could be re­placed by cap­ping the tax break on em­ployer-pro­vided health in­sur­ance. There’s no short­age of sup­port for a cap within the GOP: In his June 2016 pa­per,

A Bet­ter Way, House Speaker Paul Ryan pro­posed cap­ping the ex­clu­sion “at a level that would en­sure job-based cov­er­age con­tin­ues un­changed for the vast ma­jor­ity of health in­sur­ance plans.” He ar­gued the un­lim­ited tax break holds down work­ers’ wages and un­fairly ben­e­fits the wealthy.

The ACA re­place­ment plan pro­posed by HHS Sec­re­tary Tom Price when he was a Geor­gia con­gress­man—the Em­pow­er­ing Pa­tients First Act—put a tax ex­clu­sion cap at $8,000 for sin­gle cov­er­age and $20,000 for fam­ily cov­er­age.

The House Repub­li­cans’ leaked drafts of the ACA re­place­ment would limit the tax break to the 90th per­centile of cur­rent group health in­sur­ance pre­mi­ums. Ben­e­fits above that thresh­old would be taxed. While the ACA re­place­ment plan isn’t fi­nal­ized, given the GOP sup­port for the cap it wouldn’t be a sur­prise to see a change to the tax ex­clu- sion in the fi­nal draft.

If em­ploy­ers’ re­sponse to the leaked drafts is any in­di­ca­tion, the Trump ad­min­is­tra­tion can be sure that pushing the cap on the tax break through will be an up­hill bat­tle.

Em­ploy­ers aren’t about to trade the Cadil­lac tax for a cap on the tax break. To em­ploy­ers they’re the same thing, Gelfand said, adding that law­mak­ers should ex­pect “strong push­back from the em­ployer com­mu­nity.”

Newspapers in English

Newspapers from USA

© PressReader. All rights reserved.