Health Care, Explained
The House Republican plan to overhaul the Affordable Care Act would delay, not repeal, the so-called "Cadillac tax" on the most expensive job-based health insurance plans.
The news came as a disappointment to some in the Republican rank and file, as well as labor union members, who fought for years against the 40 percent excise tax, which is currently scheduled to begin in 2020 and would be pushed off until 2025 under the latest proposal.
On what the “Cadillac tax” is
"Or what will it be or what might it be. The Cadillac tax is one of taxes that was put in place as part of the Affordable Care Act in 2010 and has never actually taken effect. The idea is basically to tax high-cost, employer-sponsored health plans. Right now, those plans aren't taxed at all. Your employer can give you tax free income in the form of health insurance. It's not income to you, there's no payroll tax you owe on it. The idea of the Cadillac tax was to try to carve at that a little bit and just say, ‘OK, let's set a threshold. In this case, in a couple years, at about $10,800 for individual coverage and $29,100 for family coverage. Above that, the insurer employer would owe a 40 percent tax. The idea is that that might serve both as a revenue source and as a cost constraint."
On who has these types of plans
"These plans tend to be in a couple different areas. One is they tend to be in labor union contracts because one of the things that's happened is in contract negotiations is unions can go and say, ‘Look, if you pay us in health insurance, it's cheaper than paying us in cash. So, let's negotiate health insurance increases and more generous plans.’ So it tends to be private-sector labor unions, and some public sector, too. It's also in areas where you've got the insurance pool for that employer — think telecommunications line workers or firefighters where it’s particularly dangerous and they might have higher health costs as a pool. So you might want to have a more generous plan there. It's not necessarily the wealthiest people. It's really about the generousness of the plan."
On the controversy over its inclusion in the ACA
"Oh yeah, this was heavily legislated back and forth for weeks and months among Democrats as they tried to figure out the way to make it work within the budget constraints that they had, and also to make sure that it didn't cost them they needed to get it out of the House."
On the argument in favor of the tax over the 40 percent threshold
"The argument is this. Right now because employers can compensate their workers in essentially tax-free health insurance that that encourages them to overspend on health insurance. One argument for this tax is that it serves as a cost constraint that employers would have some reason to say well, wait a minute, it's going to cost us $1.40 to provide a dollar benefits, so maybe we shouldn't do that. Maybe we should raise wages instead. Maybe we should restructure the plan somewhat. It's thought of as a way to control a cost for two reasons. One, either the tax itself would raise money. Or in the long run, if it raises wages, it also has, according to Congressional Budget Office scoring an effect on the federal budget where it brings in a significant amount of money over time."
"Right now, that's tilted maybe somewhat too much, some economists would say, towards health insurance and not enough toward wages and they would just shift it over."Richard Rubin
On the possibility that the tax might raise wages
"Well, remember businesses are already spending a certain amount on the labor they're getting. They're going to think about really should we just reallocate our spending on our employees. Right now, that's tilted maybe somewhat too much, some economists would say, towards health insurance and not enough toward wages and they would just shift it over. A lot of the groups that were wary of the Cadillac tax and are still wary of the Cadillac tax don't buy that argument from economists that wages in the long run would go up."
On the delay of implementation until 2020
"That was part of a deal that Congress struck at the end of 2015 that either extended a bunch of tax breaks and delayed some other tax increases. There was really bipartisan support for pushing this back, both to give companies some more time to prepare for it and to avoid it actually taking effect."
"Welcome to Washington budget math. The Republicans are advancing this plan under a procedure known as reconciliation, and that basically comes with a bunch of rules attached to it. One of those rules is you can't increase budget deficits outside of the ten year budget window. What does that mean? That means that when you get beyond 2026 the bill as a whole can't increase the budget deficit. So, the Cadillac tax, repealing it because it is so powerful in terms of raising money, getting rid of it would remove a lot of that second decade, third decade, that revenue that's slated to come in in the 2020s and 2030s. Leaving it in place is lurking in the middle distance... really helps them with their budget scoring. They have no intention of actually implementing the tax. They oppose it, they want to get rid of it. It's purely an artifact of the budget scoring and the way that the math is done on Capitol Hill."
On whether businesses are modifying the plans they offer employees because of the tax
"We've started to see that especially in the run up to the 2015 bill when it wasn't clear whether the tax would take effect as planned in 2018. As you know, health insurance contractors set in advance and employment agreements are set in advance, and you had union contracts that were starting to come due that would have included the 2018 period. There was some measure of reducing benefits or cost shifting or other measures that employers were taking to try to get as much away from that tax as they could."
On how the delay or lack of implementation of the tax would impact the health care system
"Republicans explored one option. Right now, it's called the employer exclusion, the ability to say that income you receive in the form of employer provided health insurance is tax-free. When you get your health insurance, you're not paying income tax or payroll tax on it. Republicans flirted with the idea that would say, ‘Well look, let's take the 10 percent of most generous plans, and we'll set a cap at the 90th percentile. We'll tax as personal income.’ That didn't even make it to the writing a bill and releasing it stage. There's a lot of resistance to that idea. When you think about it, even though the tax would ultimately be born by the same people, some combination of the workers and the company, the idea of taxing individuals on their health insurance is much more politically challenging than a tax on the companies the way the Cadillac tax is structured, even though it, economically, it really doesn't make much of a difference."
This conversation is part of a weeklong series on health insurance and the American Health Care Act, the Republican plan to repeal and replace the Affordable Care Act. You can find links to the rest of our stories below.
This segment aired on March 16, 2017.
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