Repeal the excise tax on high-cost health plans

In the wake of the King v. Burwell decision, the future of the Affordable Care Act is more certain than ever. Because of the law, millions of Americans have gained health insurance coverage, and millions more have higher-quality plans that will protect them from costly medical emergencies. With these successes already in the books, there are some small changes that would make a big difference for working families—including repeal of the harmful 40 percent excise tax on high-cost plans set to begin in 2018. Rather than re-fighting old battles over the future of the ACA, it is time for Congress to work together to implement smart changes to help the law work better for all Americans.

Indeed, Congress has amended the ACA to improve certain facets of the law. For example, Congress reduced burdens on small business and taxpayers by eliminating an onerous 1099 filing requirement, repealing the financially unsustainable CLASS Act, and helped military families by extending TRICARE coverage to dependents up to age 26.

{mosads}Now, there is growing bipartisan support to repeal of the so-called “Cadillac tax” that is scheduled to take effect in January, 2018. Why? Because respected independent actuaries (Towers Watson, AON, Milliman) have all concluded that the tax will not just nip at the health plans of the super-rich, but will harm the coverage of millions of middle-class “Ford Focus” health plans.

These actuaries have unanimously found that the tax would not reduce waste because premium costs are driven by age, gender, and geographic location, which have nothing to do with plan benefits or utilization. In a nutshell, the tax would clobber older workers, women, and families in expensive locations who receive relatively modest health benefits.

Despite growing support for repealing this harmful tax that would go into effect in 2018, defenders insist that the tax will impact only “Cadillac” level plans. The theory goes that by stripping down the plans’ coverage, the tax penalty will magically generate new income for workers as employers boost wages to respond to benefit cuts, thus increasing tax revenues to cut the deficit. However, there is overwhelming evidence to dispute this theory.

For employers in high-cost regions in the midst of negotiating long-term labor contracts for teachers, firefighters, and office workers are already reacting to the looming specter of the excise tax by drastically reducing health benefits to avoid the tax. For families, this means a shift from comprehensive coverage to high-deductible plans that provide fewer benefits and require far more out-of-pocket spending—squeezing household budgets during a time when wages have largely stagnated for middle class families.

The Congressional Budget Office projections of the costs of repealing the tax have dropped significantly this year, but their figures include a questionable assumption—that employers, as they cut benefits to avoid the excise tax, will provide their workers with raises to fully compensate them for reduced health coverage. Three-quarters of CBO’s projected cost of repealing the excise tax comes not from the tax itself, but from income and payroll taxes on this theoretical wage increase—a notion that defies both common sense and recent economic trends.

Even more damaging, the tax undermines the goals of the ACA by punishing cost-effective prevention and wellness care, which the U.S. Treasury has ruled would be subject to the tax. According to study after study, access to routine preventive care has proven to reduce costs and improve health outcomes.  Without affordable access to this care, patients will seek high-cost emergency room treatment for primary care and common ailments, costing much more to insurers and hospitals—undercutting the expansion of preventive care via the Affordable Care Act that we know bends the cost curve of health care spending.  Studies show that health plans with high beneficiary cost-sharing often result in patients delaying or refusing routine care that could have prevented more serious health complications and expensive uncompensated care.

In the House of Representatives, my bipartisan bill to repeal the excise tax, H.R. 2050, The Middle Class Health Benefits Tax Repeal Act of 2015 has more than 140 co-sponsors from both sides of the aisle. If passed, it will do what the American people want—for Congress to repair and improve the law to help it work better. 

The U.S. Chamber of Commerce, the National Association of Health Underwriters, the National Association of Manufacturers, the American Benefits Council, Human Resources Policy Association, UNITE HERE, the National Association of Counties, the AFL-CIO, Cigna, the International Association of Fire Fighters, and many more have formed an unusual alliance to combat the excise tax.   I have heard from towns in Connecticut, Waterford and Groton in particular, where negotiations for town employees are stalled over who should pay the excise tax burden.  Diverse stakeholders such as these do not often align on questions of health care policy, but they have sent Congress a powerful message: work together to stop the harm this tax would inflict.

As President Obama said during a speech in Tennessee in July, despite progress that has expanded coverage to 90 percent of Americans in the law’s first five years, “we’ve still got work to do to make health care in America better.” Eliminating the threat that the excise tax poses to millions of Americans with work-based health plans is a good way to start.

Courtney has represented Connecticut’s 2nd Congressional District since 2007. He sits on the Armed Services and the Education and the Workforce committees.


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