Dem fault lines emerge on ‘Cadillac tax’

Greg Nash

Prominent ObamaCare supporters are lashing out against a plan backed by other Democrats to delay the contentious “Cadillac tax” for two years, warning that the delay would blow a hole in the healthcare law. 

A two-year suspension of the 40 percent tax on high-cost health insurance plans is expected to appear in a year-end package of tax breaks known as “tax extenders,” though negotiations aren’t yet complete.

{mosads}Democratic leaders in both chambers of Congress favor scrapping the tax altogether, which would be the biggest legislative change to the law since its enactment. Unions are leading the call for repeal, contending that the tax will end up shifting health costs onto workers.  

However, there is a division, with some Democratic lawmakers, health experts and — most notably — the White House pushing support for the tax. Backers argue the projected $91 billion in revenue created by the tax over the next decade is essential to funding the law and keeping healthcare costs in check.

“A two-year delay, I’m concerned, turns into a permanent delay,” said Sen. Mark Warner (D-Va.). “It was one of the key areas of cost containment, and in a state like mine where we’re still trying to get Medicaid expansion, and state legislators say the federal government’s not going to keep the existing commitments, when you take away one of the substantial pay-fors for healthcare reform, you strengthen their case.”

Warner added that delays in the tax could continue indefinitely, as when lawmakers used “doc fix” legislation to avert Medicare cuts year after year. 

“We could be creating the next doc fix,” Warner said.

When the law was being developed, there were divisions within the White House and Democrats in general over how much to prioritize cost control. 

Peter Orszag, a former top White House official who worked on the law, said the push for repeal is exposing those lingering tensions among backers of reform and its three pillars: coverage expansion, budget neutrality and cost control.

“The coalition in favor of those three pillars always had some tension in it,” Orszag said. “When elements of that coalition just pick out their favorite pillar and are willing to jettison the other two, the irony is they may end up harming the thing they think is most important. 

“If you lost one of the three legs, the whole thing becomes much less sustainable,” he added. 

Opponents of the tax argue that employers will increase deductibles and other out- of-pocket expenses that employees have to pay in a bid to avoid triggering the tax, which hits plans with costs that exceed $10,200 for individuals or $27,500 for families. The tax is set to go into effect in 2018.

Cadillac tax defenders, meanwhile, argue that it gives employers an incentive to support payment reforms and efficiencies to bring down the cost of healthcare, and that increased cost-sharing for employees gives them an incentive to seek out more efficient, less-expensive care.  

Orszag and others argue that the best way to help workers with their healthcare costs is to keep the tax, so that it can help bring down health costs, and in turn, premiums over time. 

“I wish and hope that we could help articulate that argument to labor,” said Bob Kocher, another former White House official who worked on the law.

“I find it disappointing that it’s Democrats [pushing for repeal], who I believe are being short-sighted,” he added. 

The Obama administration has repeatedly expressed its support for the tax despite opposition from Democrats in Congress. 

White House press secretary Josh Earnest made some of his strongest statements of support on Wednesday. 

“We certainly strongly oppose the notion of repealing the Cadillac tax,” Earnest said. “We would welcome efforts from any Democrat or any Republican that has the desire to strengthen the Affordable Care Act, and repealing the Cadillac tax is not a way to strengthen the Affordable Care Act.”

However, he declined to say whether President Obama would veto a tax extenders bill that includes a delay of the tax. 

Larry Levitt, an expert on the health law at the Kaiser Family Foundation, said that a two-year delay would not have a huge effect because the tax really kicks into gear in later years. It is expected to start applying to more health plans as time goes on.

“It would still preserve the long-term payoff,” he said. But he also said delaying the tax once opens the door to continual delays that could mean it never actually goes into effect. 

Still, 90 senators voted for an amendment to repeal the tax last week. 

Sen. Chris Murphy (D-Conn.), one of those 90 and one of the strongest backers of ObamaCare as a whole, argued that the law could withstand the revenue and cost-control losses. 

“The law clearly is costing less than imagined, so we have a surplus of revenue compared to how much the law costs,” he said. 

He pointed to efforts by Health and Human Services Secretary Sylvia Mathews Burwell to make Medicare’s payment system reward quality over quantity and cut down on waste. 

“If the focus that Sylvia Burwell has on payment reform continues, that will be all the cost control that you need,” he said.

Tags Chris Murphy Mark Warner
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