‘Cadillac’ Tax Opponents Unimpressed with Obama Budget Fix

By and | February 8, 2016

President Barack Obama is having a tough time winning friends for his Cadillac tax.

His plan to dial back the unpopular Obamacare tax on high- cost health plans, to be detailed in the fiscal 2017 budget he’ll release Feb. 9, has won him no applause from employers, labor unions or health insurers. The tax still must be repealed, they say, not merely modified.

“The ‘Cadillac tax’ cannot be fixed,” James Klein, president of the American Benefits Council, a nonprofit representing employers, said in a statement. “We’re glad the administration recognizes the ‘Cadillac tax’ is seriously flawed. But its impact in high cost areas is just one of its many problems.”

The president’s proposal would reflect regional differences in the cost of practicing medicine, reducing the tax’s bite where care is particularly expensive, Jason Furman, the White House Council of Economic Advisers chairman, wrote in the New England Journal of Medicine on Wednesday. Employers have complained that by imposing a uniform limit on the value of health benefits across the country, the tax failed to take into account the higher cost of health insurance in some regions.

The American Federation of State, County & Municipal Employees, or AFSCME, said it still supports “nothing less than full repeal” of the tax.

“Minor tweaks are insufficient to remedy its myriad problems,” said Steven Kreisberg, director of collective bargaining at the AFSCME union.

‘Gold’ Plans

Under the Affordable Care Act, health plans pay a 40 percent excise tax on the cost of their coverage over a threshold value, currently $10,200 for individuals or $27,500 for families. Such plans are called “Cadillac” because they usually offer generous health coverage. The limits are expected to adjust upward before the tax takes effect in 2020.

Obama’s budget would raise the threshold at which plans are subject to the tax in states with higher health-care costs. Instead of a single threshold across the country, employers could offer more generous coverage in states where “gold”-level plans offered on the ACA’s insurance exchanges cost more than the Cadillac tax limits. Gold plans are the second-most generous plans available on the exchanges.

The effect would be that fewer employers would pay the tax.

Even though Obama’s modification of the tax hasn’t mollified groups affected by the tax, there are strategic reasons to offer the proposal, said Stan Collender, a budget analyst and executive vice president at Qorvis/MSLGroup in Washington. Hillary Clinton, a Democrat vying to succeed Obama as president, has promised to eliminate the tax and may benefit.

“They’re trying to keep the tax in place rather than have it go away,” he said in an interview. “Now unions are going to be able to sidle up to Hillary, who says she’s going to remove it.”

‘Bad Policy’

The National Retail Federation, a group of more than 18,000 companies that often finds itself on the opposite side of unions, is in the same corner on the tax.

“The Cadillac tax is bad policy,” Neil Trautwein, vice president of health-care policy at the retail group, said by e- mail. “The answer to health-care costs is with providers, not the purchasers of care or coverage.”

The National Business Group on Health, which represents large employers, said it appreciated Obama’s acknowledgment that the tax “has flaws and targets employees even in modest plans,” but that it still wants the levy repealed.

The White House said the change is good economic and health-care policy.

“Economists and health policy experts across the political spectrum agree that the excise tax will drive employers — and the insurers who want their business — to make their health- care plans more efficient, such as by deploying innovative new ways of paying doctors and hospitals and negotiating for better prices from insurers and providers,” White House spokeswoman Katie Hill said in an e-mail. “Congress has already shown a willingness to make common-sense improvements to the tax, and we encourage them to enact additional sensible improvements, like the proposals we’re putting forth.”

Cost Growth

Paul Van der Water, a researcher at the Center on Budget and Policy Priorities, which advocates for policies that benefit low-income people and is frequently allied with the White House, said Obama’s proposal merits consideration.

“The tax has a strong policy rationale,” he wrote in a blog post on the group’s website. “It could slow health-care cost growth by discouraging firms from buying extremely expensive health coverage that promotes excess use and inefficient delivery of health care.”

The tax was key in financing the Affordable Care Act’s insurance coverage expansions, and was intended to slow the rise of health-care costs by putting pressure on employers to limit their benefits and push for lower prices from hospitals and doctors.

The year-end spending deal that Obama signed in December postponed the start of the Cadillac tax by two years, until 2020. The Congressional Budget Office said the delay would result in lost revenue of $17.7 billion over 10 years.

Orrin Hatch, the Utah Republican who chairs the Senate Finance Committee, maintained that the tax must be repealed.

“Putting a band-aid on the issue, as the administration’s proposal does, won’t fix the problem,” Hatch said in an e-mailed statement Wednesday. “Instead, we need to have this flawed tax repealed in its entirety once and for all.”

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