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GOP needs to kill this onerous Obamacare tax now

  • Employer-based health insurance covers 150 million people.
  • Obamacare's "Cadillac" tax will make health insurance unaffordable for millions of workers.
  • The GOP's Obamacare replacement needs to kill the 'Cadillac" Tax outright.

Sens. Cory Gardner, R-Colo., John Barrasso, R-Wyo., Roy Blunt, R-Mo., Senate Majority Leader Mitch McConnell, R-Ky., and Majority Whip John Cornyn, R-Texas, conduct a news conference after the Senate Policy Luncheons on June 6, 2017.
Tom Williams | CQ Roll Call | Getty Images
Sens. Cory Gardner, R-Colo., John Barrasso, R-Wyo., Roy Blunt, R-Mo., Senate Majority Leader Mitch McConnell, R-Ky., and Majority Whip John Cornyn, R-Texas, conduct a news conference after the Senate Policy Luncheons on June 6, 2017.

Now that the Congressional Budget Office released its formal analysis of the House bill to repeal and replace Obamacare, the Senate has promised to get to work on its own version of the American Health Care Act.

The House-approved bill would relax regulations and scrap taxes that have made insurance unaffordable for millions of Americans who purchase coverage on their own, in the individual market.

Yet the House bill fails to kill one provision that would pick the pockets of people who get their coverage through work - the 40 percent excise tax on high-cost employer-sponsored health plans known as the "Cadillac" tax. The Senate must correct this error - and junk the Cadillac tax for good.

Since World War II, the American tax code has encouraged employers to set up quality health plans for their employees by exempting company health benefit expenditures from income and payroll taxes. Today, the employer-based system covers more than 150 million Americans, making it the single most common source of health insurance in the nation.

The Cadillac tax puts this system -- which is extremely popular with workers -- at risk.

The tax was conceived by Senate Democrats in 2009 to help finance the Affordable Care Act. It was slated to go into effect in 2018 but has proven unpopular with Republicans and Democrats alike. Congress passed a law in 2015 to delay the tax until 2020.

"Today, the employer-based system covers more than 150 million Americans, making it the single most common source of health insurance in the nation. The Cadillac tax puts this system -- which is extremely popular with workers -- at risk."

President Trump's election created a golden opportunity for Republicans to nix the tax altogether. But fearing that outright repeal would run afoul of the Senate's budget rules, House Republicans chose to delay the tax until 2026.

The Senate should finish the job -- and repeal the tax permanently. The upper chamber is already on record in opposition to the Cadillac tax. Two years ago, 90 senators -- including 36 Democrats -- voted to repeal it.

The Cadillac tax commands opposition from Republicans and Democrats -- and unions and businesses -- because it will cost middle-class Americans big time.

The tax makes employer-sponsored insurance much more expensive (page 5). Employers can only respond by providing skimpier, more expensive benefits. Employees will increasingly find that their employer health plans limit access to doctors, hospitals, and certain high-priced drugs; reduce coverage for add-on benefits or dependents; or ratchet up deductibles, co-pays, co-insurance, and other forms of patient cost-sharing (under the sub-header How Could Plan Design Change?).

Employers can't wait until right before the Cadillac tax begins to make changes. Instead, they have to make changes gradually, whittling away at benefits and increasing employees' premiums. These changes will substantially degrade the quality of coverage available to American workers (employee impact - pg.7).

Put another way, because of the Cadillac tax, Republican lawmakers could one day suffer the same criticism as President Obama -- and be blamed for misleading Americans into believing that if they liked their plans, they'd be able to keep them.

Indeed, the Cadillac tax will hit more than 50 percent of the workforce within ten years of its implementation, according to a January study by the consulting firm Milliman (Executive Summary, p.1). That's 60 million Americans. These employees could see their benefits slashed by thousands of dollars -- while their salaries stay flat.

No wonder politicians keep putting off the day of reckoning.

Some economists theorize that workers might see their pre-tax wages increase as employers switch to cheaper plans. But if that happens, employees would also pay a lot more in taxes. The Cadillac tax could cost 12.1 million employees upwards of $1,000 in higher payroll and income taxes annually.

In fact, 80 percent of the revenue raised by the Cadillac tax is expected to come from workers paying more income and payroll taxes, according to the Joint Committee on Taxation and the Congressional Budget Office.

Senate leaders have stated that they expect to make significant changes to the House health reform bill. Their first should be outright repeal of the Cadillac tax. Such a move would go a long way toward protecting the employer-sponsored system that has provided affordable, quality coverage to more than half the population for decades.

Commentary by James Gelfand, the senior vice president for health policy at The ERISA Industry Committee (ERIC). ERIC is the only national association that advocates exclusively for large employers on health, retirement, and compensation public policies at the state, federal, and local levels.

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