Don’t re­call the ‘Cadil­lac tax’

The Washington Post Sunday - - SUNDAY OPINION -

A bill to re­peal it would gut Oba­macare, not im­prove it.

FOR FIVE years, Repub­li­cans have been try­ing, un­suc­cess­fully, to re­peal Oba­macare. But where the GOP has failed, a bi­par­ti­san coali­tion in­clud­ing dozens of Democrats aims to suc­ceed — at least in part.

That’s the strange-but-true im­pli­ca­tion of the new push to re­peal the so-called “Cadil­lac tax” on high-cost em­ployer-paid group health plans. Levied at a rate of 40 per­cent on the value of a plan that ex­ceeds $10,200 for in­di­vid­u­als and $27,500 for fam­i­lies, the tax rep­re­sents an ab­so­lutely cru­cial re­form in the over­all Oba­macare pack­age.

There is wide agree­ment among ex­perts that the cur­rent tax ex­clu­sion for em­ployer-paid health in­sur­ance dis­torts the econ­omy in mul­ti­ple ways. By sub­si­diz­ing de­mand for health ser­vices, it ar­ti­fi­cially boosts their costs, fu­el­ing health-care in­fla­tion gen­er­ally. The ex­clu­sion ties health cov­er­age to em­ploy­ment (about half of all in­sured Amer­i­cans get health care thisway), thus in­duc­ing “job lock” for em­ploy­ees. And it dis­pro­por­tion­ately ben­e­fits up­per-in­come peo­ple, who pay higher tax rates and tend to re­ceive higher-value in­sur­ance — “Cadil­lac plans” — as part of their com­pen­sa­tion.

In ad­di­tion to those per­verse ef­fects, the ex­clu­sion for em­ployer-paid in­sur­ance costs the trea­sury enor­mous sums: a pro­jected $785 bil­lion be­tween 2014 and 2018, ac­cord­ing to the Joint Com­mit­tee on Tax­a­tion. Thus, blunt­ing it via the Cadil­lac tax is one of the ma­jor sources of rev­enue Congress used to pay for the rest of Oba­macare. The Con­gres­sional Bud­get Of­fice has es­ti­mated that this could raise $87 bil­lion over 10 years. Oth­er­wise, health re­form could blow a hole in the fed­eral bud­get.

You can see why Repub­li­cans would bri­dle at the Cadil­lac tax; it’s got the word “tax” in it, af­ter all. Democrats who op­pose it have a slightly more com­plex ra­tio­nale, how­ever. Some of them come from parts of the coun­try where health costs are rel­a­tively high, and this is re­flected in the value of em­ployer-paid plans. They are also do­ing the bid­ding of or­ga­nized la­bor, whose role in the work­place is in­creas­ingly re­lated to ne­go­ti­at­ing big­ger health ben­e­fits and there­fore would be a big loser un­der the Cadil­lac tax.

La­bor’s ob­jec­tions, chan­neled via sym­pa­thetic con­gres­sional Democrats, helped pre­vent the Cadil­lac tax from tak­ing ef­fect im­me­di­ately upon Oba­macare’s pas­sage in 2010. In­stead, it won’t hit un­til 2018. Al­ready, though, many com­pa­nies are trim­ming their health plans in an­tic­i­pa­tion of that date, which is prob­a­bly one rea­son health-care-cost growth has been slow­ing of late.

Now comes the in­evitable at­tempt to make sure it will never take ef­fect, in the form of a bill by Rep. Joe Court­ney (D-Conn.) that has more than 100 Demo­cratic co-spon­sors (but no spec­i­fied source of re­place­ment rev­enue). There’s a sep­a­rate, sim­i­lar mea­sure spon­sored by nearly 70 Repub­li­cans. A high-pow­ered new lob­by­ing al­liance in sup­port of such leg­is­la­tion is sched­uled to launch next month. It’s backed by drug com­pa­nies, health in­sur­ers and unions. As this spe­cial­in­ter­est ef­fort cranks up, ev­ery­one needs to un­der­stand what it’s re­ally about— not im­prov­ing Oba­macare, but gut­ting it.

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