By Sarah Ferris - 11/10/15 06:00 AM EST
The tax on “gold-plated” insurance plans was included in ObamaCare over the furious opposition of labor unions, who warned it would cause employers to abandon generous coverage in droves.
With their eyes on next year’s elections, Sen. Harry ReidHarry ReidSay NO to PROMESA, say NO to Washington overreach Overnight Finance: Wall Street awaits Brexit result | Clinton touts biz support | New threat to Puerto Rico bill? | Dodd, Frank hit back McConnell quashes Senate effort on guns MORE (Nev.) and Rep. Nancy Pelosi (Calif.) are working to kill the tax, putting the imprimatur of Democratic leadership onto an effort that had previously been limited to the rank and file.
Reid and Pelosi’s behind-the-scenes lobbying against the tax, which was first reported by The Hill on Friday, is reviving the five-year-old debate over the tax that pits nearly all congressional Democrats against Obama and his top economic advisers.
“In order to help legislate the [Affordable Care Act], we had the tax not phasing in until 2018. I suspect there were lots of people thinking we’ll be able to kill it. They might have been right,” said Jared Bernstein, the former chief economist to Vice President Biden.
If allowed to take effect, the policy would be the first-ever tax on healthcare benefits in the United States.
But opposition to the tax is strong in both parties, with both business and labor firmly against it.
“People have said economists are on one side of this issue and everybody else is on the other,” said John Holahan, a senior fellow with the Urban Institute who specializes on health policy. “Its optics are terrible.”
But the unpopular policy is also at the heart of ObamaCare, because it would generate $87 billion in revenue and pressure companies and their workers to seek out lower-priced plans. In addition, it’s one of the biggest provisions in the healthcare law that is focused solely on controlling costs and not just expanding access to insurance coverage.
That challenge, Holahan and others have argued, is enough to ensure that the tax will stay put at least until a new president takes office.
“Unless somebody can come up and demonstrate how you replace the dollars, then you need this,” Holahan said.
Led by the AFL-CIO, labor unions have made repealing the Cadillac tax one of their top priorities. For years, many of their members have won more generous healthcare benefits by forgoing pay raises.
“The tax puts liberals in a tough spot because they are generally against high deductibles, but that’s likely how the Cadillac tax ultimately controls costs. In many ways the Cadillac plan tax is much more in line with the ideas that conservatives have promoted in healthcare,” said Larry Levitt, a longtime ObamaCare observer and senior vice president for the Kaiser Family Foundation.
The White House has rejected any outright repeal of the tax, but when asked Monday, spokesman Josh Earnest did not rule out a potential compromise.
“This law does not take place until 2018, so we’ll be able to continue to evaluate exactly how it would go into effect. If in that intervening time, there are ideas that are put forward that will strengthen the law, then we’re open to a conversation about that,” Earnest said, adding, “It’s important that people not overlook the benefits of this policy.”
Spokesmen for Pelosi and Reid did not return requests for comment.
The two Democratic leaders have already been effective in negotiating changes to the tax. When ObamaCare was still being written, Democratic leaders led by Pelosi worked to score several concessions in the policy, which had initially come from the Senate.
But after Democrats lost their supermajority in the 2010 special election, Pelosi needed to convince her House colleagues to pass the Senate version of the bill. She did that, in part, by insisting on a number of fixes, including a delay to the Cadillac tax.
Under the final version, the tax’s implementation was put off until 2018 — giving time for labor leaders to negotiate new contracts. Pelosi also increased the threshold for the tax by at least $3,000 in high-cost states and for higher-risk professions.
The tax approved in the law affects plans that cost more than $10,200 for an individual or $27,500 for a family.
Even supporters of the policy such as Bernstein say there’s still more that can be done to make the impact of the tax less drastic.
“I think it would be useful for people on my side of the issue to contemplate reforms,” Bernstein, the economist to Biden, said. “At the same time, the repealers need to recognize that it will be hard, if not impossible — and I’d emphasize the latter — to get an adequate replacement out of this Congress.
“I think the responsible position, assuming you don’t have a replacement that you can assure us will pass this Congress, is to allow this to take place and make adjustments such that it remains consistent with the goals of the ACA,” he added.
While Republicans support repealing the Cadillac tax, working with Democrats toward that goal could spur a backlash from the right.
“Republican leadership has publicly parked this. They’re trying to say they’re not ruling it out, but Democrats have got to put chips out,” AFL-CIO lobbyist Tom Leibfried said in an interview in his downtown office Friday.
But, Leibfried added, Republicans are feeling the pressure from business groups that fear their costs will go up drastically in the next 18 months.
“Their tune may change because there are a lot of large employers saying, ‘Wait a minute, you have a stake in this,’ ” Leibfried said.
The Democrats’ eagerness to repeal the tax could give GOP leaders leverage — but only up to a point, says John McDonough, who advised the Senate Committee on Health, Education, Labor and Pensions during the crafting of the healthcare law.
“[Democrats] could get rid of it. They could even override a presidential veto,” said McDonough, who now teaches at Harvard’s School of Public Health.
But McDonough said Republicans would likely want to link the action to the repeal of another unpopular tax, such as the medical device tax. Doing so, he said, would be putting more logs on the fire.”
“I would never underestimate the effectiveness of Nancy Pelosi and Harry Reid, but just because they’re working hard on it doesn’t mean it’s going to happen,” McDonough said.
“The most likely scenario is that this is a scenario for 2017 and a new president. Then it plays into the largest context of ‘what the heck is happening with the ACA,’ and this’ll be a piece of that,” he said.