Support grows to repeal Obamacare 'Cadillac tax'

Bipartisans in Congress – as well as business and labor groups – are coalescing to try to stop a tax on high-premium health care plans

Sep 3, 2015 @ 1:45 pm

By Mark Schoeff Jr.

Republicans, Democrats, business organizations and unions rarely come together on any policy, but they are coalescing to try to stop a tax on high-premium health care plans.

The unusual allies are targeting the so-called “Cadillac tax” in the health care reform law that is set to go into effect in 2018. Under the provision, a 40% non-deductible excise tax would be levied on employer-sponsored health care coverage that exceeds $10,200 for individuals and $27,500 for families.

The Kaiser Family Foundation released projections on Aug. 25 showing that 26% of U.S. employers offering health benefits could be subject to the Cadillac tax in 2018. The portion rises to 30% in 2023 and 42% in 2028, if they don't modify their plans. Unions are lining up behind the repeal effort because union-negotiated health care benefits are among the most generous workplace plans in the nation.

Two bills have been introduced in the House: one by Democratic Rep. Joe Courtney of Connecticut that has 132 cosponsors and one by Republican Rep. Frank Guinta of New Hampshire that has 81 cosponsors.

A Senate bill could be introduced in September, when the chamber returns from its summer recess. The National Journal recently reported that Sen. Dean Heller, R-Nev., is writing the legislation. A spokesman for Mr. Heller was not immediately available for comment.

A measure to repeal the Cadillac tax could be included in so-called reconciliation legislation this fall. Under Senate rules, a reconciliation bill only needs a simple majority to pass; it cannot be filibustered. Additional provisions of such a bill might address other aspects of the health-care reform law.

An August grassroots campaign by the U.S. Chamber of Commerce generated 12,429 letters to lawmakers — all 100 senators and 402 members of the House — opposing the health-care excise tax. The group, which is working with unions on the topic, plans to increase its efforts in September. Stopping the tax is one of the items at the top of its fall agenda.

“All of these seem to have some momentum,” Randy Johnson, the Chamber's senior vice president for labor, immigration and employee benefits, told reporters Thursday. “It's not just pie-in-the-sky legislation that we're working on. They have sometimes bipartisan support, especially the Cadillac tax.”

Designed to curb high-cost health plans, the tax also impacts middle-income employees, according to David Haraway, president of Substantial Financial.

The tax applies to health savings accounts as well as flexible spending accounts. It could make them more expensive and harder to administer and cause companies to drop them, Mr. Haraway said.

“I think it hits the middle-class pretty hard,” he said. “That's where you could get critical mass. It's not the 1% any more. Maybe it's the 30%.”

The idea behind the tax has merit, said Alan Cole, an economist at the Tax Foundation in Washington. It is targeted at the revenue lost due to the exclusion of employer-paid health care benefits from taxation. This is the largest so-called tax expenditure, costing the U.S. Treasury approximately $200 billion annually.

But the problem is the way that the tax was designed, Mr. Cole said.

“They don't pay attention to the rest of your income,” he said. “They just look at your health care contribution.”

Mr. Cole thinks it would be better if health care benefits were folded into adjusted gross income with a tax break that reduces what would be a substantial tax increase.

Some Republicans could resist a Cadillac tax bill because they want to repeal the health care reform law in its entirety. But that's not a realistic approach, according to Mr. Johnson.

“There is a growing realization that repeal is not going to happen,” he said. “But there's room to improve it in certain ways.”

Even Democratic presidential frontrunner Hillary Rodham Clinton has said she is open to modifying the Cadillac tax.

“It's less partisan than some other tax issues,” Mr. Cole said.

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