Democrats Could Kill Obamacare by Repealing 'Cadillac Tax'

By Daily Editorials

October 13, 2015 4 min read

It's unusual when Democratic presidential candidates Hillary Clinton and Bernie Sanders are on the same page as they compete for primary voters. It's even more unusual when labor unions and the U.S. Chamber of Commerce are singing the same song.

But the Affordable Care Act's so-called "Cadillac tax" is bringing these and many more disparate political bedfellows into unison. And people complain that President Barack Obama's policies are divisive.

Ordinarily, a coalition this diverse might be on to something. If so many people from so many perspectives hate this tax on high-cost, high-benefit health plans, the policy must be misguided. Right?

Not really. Not if facts matter more that politics. Health care economists and policy experts believe the tax is one of the most important pieces of the Affordable Care Act — not so much for the revenue it raises but because of the market behaviors it encourages, and discourages.

They argue that the tax will lead to reductions in health care costs in two ways. First, by encouraging employers to exchange higher-cost health benefits for higher wages. Second, by reducing overall demand for health care services — especially services that cost a lot of money but don't do much to actually improve health care outcomes.

And then there's the revenue the tax generates. The latest estimate by the Joint Committee on Taxation is that the tax will raise $91 billion over the next 10 years. That's hardly chump change.

But that amount pales in comparison to the savings in health care costs the tax could generate by reducing the number of high-priced, comprehensive health plans and the high-cost, low-value use of the health care system they encourage.

A recent report by the Congressional Research Service says those savings could reach $40 billion to $60 billion a year by 2024. The tax could significantly decrease the rate of health care inflation — indeed, some economists argue that it already has.

So why so much opposition from such a diverse group if this policy would do so much good? Because while the good it does is spread across the nation and the economy, the costs are concentrated among a powerful few: unions, corporations, health insurance providers and the rich. In other words, the sorts of people who make big campaign contributions that capture the attention of candidates.

The tax would be a hefty 40 percent on the value of employer-sponsored plans that exceed current thresholds: currently $10,200 for individual coverage and $27,500 for family coverage. Only the portion above those thresholds would be taxed, so for instance, only $200 of a $10,400 individual plan would be subject to the tax.

Very few households would currently be hit by the tax — about 6 percent, according to a study by the Tax Policy Center. Whether the thresholds increase or decrease depends on health care inflation. If the tax contains inflation as expected, the number of plans affected would decrease.

Though Democrats have gone to great lengths to defend the Affordable Care Act against Republican attacks, the Cadillac tax is a tough political sell in light of union opposition. Democrats are not immune from feathering their own nests. Mr. Sanders and seven other Democratic senators have introduced legislation to repeal it.

Before Democrats make common cause with the Chamber of Commerce and health insurers, though, they need to make sure they understand what experts say the tax will accomplish, and what getting rid of it may do to health care costs in the United States.


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