Don’t recall the ‘Cadillac tax’
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.