Employer and business groups are shifting their lobbying efforts from repealing the Affordable Care Act's unpopular “Cadillac” tax to fighting GOP proposals to chip away at the tax break on employer-provided health insurance.
Capping the tax break, they say, would cause employers to offer skimpier benefits, and some would stop offering coverage altogether. That would erode the employer-sponsored health insurance market, where 178 million Americans get their health coverage.
But mentions of tax reform led by a GOP-controlled Congress has opponents gearing up for their biggest and potentially most expensive battle yet. In the last two weeks, leaked drafts of the House Republican bill to repeal the ACA showed lawmakers plan to cap the tax breaks on employer-sponsored health insurance to pay for the replacement healthcare law. It would be the single source of revenue to pay for the new age-based tax credits that would replace the ACA's subsidies.
Capping the tax break is “not a policy that's good for workers and not a policy that's good for employers,” said James Gelfand, senior vice president of health policy for the ERISA Industry Committee, a lobbying group for employee benefit issues.
But the idea of capping the tax break, or doing away with it entirely, is a favorite GOP tax reform strategy that's been floated several times since the 1980s. Today both employers' and employees' contributions to the cost of health insurance are excluded from federal income and payroll taxes. That's a major incentive for employers to provide insurance. But employers argue that taxing health benefits would require them to scale back on the benefits they offer, pass more costs onto employees, or even quit providing insurance.
“Why would an employer want to pay for the health benefit if the government is willing to pay” with a tax credit? Gelfand asked.
If employers drop health benefits, the employer-sponsored market could lose its stability, cap opponents say. And while the proposal to cap the exclusion aims to hit overly generous health plans, plans with older workers or those in states with more expensive healthcare could exceed the threshold even if their health plans aren't generous, said James Klein, president of the lobbying group American Benefits Council.