The Affordable Care Act's tax on high-end insurance plans has received growing bipartisan opposition, but a report out Thursday says it is necessary for the financial stability of the law and other options aren't likely to advance in the current Congress.
The report from the Robert Wood Johnson Foundation and the Urban Institute shows that there are viable financial alternatives to the so-called Cadillac tax, like a cap on the amount employers and employees can contribute to premiums without being taxed. Attempting to make that happen, however, would be risky in the current political climate, according to the report.
If the tax is repealed without an alternative, it would leave an $87 billion hole in federal revenue. The 40% excise tax, scheduled to go into effect starting in 2018, would be applied to individual plans above $10,200 for individuals and $27,000 for families.
Katherine Hempstead, who directs coverage activities for the Robert Wood Johnson Foundation, said the idea of capping or even eliminating the tax exemption to make coverage more modest has been supported by economists and politicians across the spectrum for years.
The report shows the Cadillac tax having nearly the same effect, but the tax has been unpopular politically.
“This is very similar to something a lot of people support,” she said.
Leading Democratic presidential candidates Sen. Bernie Sanders (Vt.) and Hillary Clinton have broken with the Obama administration by calling for a repeal. They are joined by some big-name businesses, as well as insurance companies and labor unions.
An analysis by the Kaiser Family Foundation found that about a quarter of employers would be subject to the tax in its first year if they did not change their plan offerings. It predicted companies will reduce benefits, narrow provider coverage areas and increase cost sharing.
A poll released this week by the U.S. Chamber of Commerce and other business groups found that although 44% of respondents didn't know what the Cadillac tax was, 48% of all surveyed, after hearing an explanation of the tax, said it should be repealed.
Hempstead said many voters react negatively to the thought of a tax, even if they don't quite know why it is recommended.
“Repealing a tax, that has a good ring to it for the average voter but they don't really understand,” she said.
The excise tax and the exclusion cap have the same goal of encouraging employers to offer fewer benefits, with the expectation that wages would eventually rise as a result. The tax best achieves this when employers decide to scale back benefits rather than pay the tax, which the Congressional Budget Office and Joint Committee on Taxation predict would happen.
The report notes that a cap on the tax exclusion, which has been supported by economists on both sides of the aisle for years, would be slightly better than the Cadillac tax, but the authors conclude it is not worth the risk of losing both, especially in a highly contentious political environment.
In a statement released with the business groups' poll results, industry leaders said the tax will stifle healthcare innovation and threaten important wellness and prevention benefits.
“The 40% tax on health plans is yet another example of how the Affordable Care Act has failed to curb rising costs,” said Chamber President and CEO Thomas Donohue. “It is ironic that a law, which requires businesses to provide a certain level of health coverage, includes a provision that will undercut the health coverage that more than 160 million Americans enjoy.”