Junk the Cadillac TaxHealth Tax Policy
Our nation is not suffering from a condition of having too much insurance coverage. A recent series by Noah Levey in the Los Angeles Times highlights how the rapid move to high deductible plans and greater imposition of cost sharing upon consumers by insurers is making health care increasingly unaffordable, causing families to delay critically necessary care, and driving a growing number of people toward bankruptcy.
The private health care crisis is increasingly one of underinsurance.
There has been a quiet revolution in what health insurance means in this country. This happened under the radar while everyone was focused on the Affordable Care Act.
We forgot that most people get their insurance through an employer, and for them, the issue is medical bills that they increasingly cannot afford.
Levey highlights these disturbing facts from a survey that the Los Angeles Times conducted with KFF:
Nearly half of those in a plan with at least a $3,000 individual deductible or a $5,000 family deductible reported problems affording healthcare.
One in six Americans who get insurance through their jobs say they’ve had to make “difficult sacrifices” to pay for healthcare in the last year, including cutting back on food, moving in with friends or family, or taking extra jobs. And one in five say healthcare costs have eaten up all or most of their savings.
Half said costs had forced them or a close family member to delay a doctor’s appointment, not fill a prescription or postpone some other medical care in the previous year.
Hardest hit in the cost shift are lower-income workers and those with serious medical conditions such as diabetes, heart disease and cancer — who are more than twice as likely as healthier workers. . .to report problems paying medical bills and to say they’ve cut back on spending for food, clothing and other household items.
The “Cadillac Tax” Is a Solution in Search of a Problem
The Affordable Care Act (ACA) played a critically important role in helping millions of previously uninsured Americans find health care coverage through its combination of a Medicaid expansion for lower-income families and premium tax credits and exchanges to purchase more affordable private insurance for people with income above 138 percent of poverty.
Unfortunately, there is one provision in the ACA that, if allowed to go into effect, could be potentially harmful to people enrolled in private health plans, including children. That provision is referred to as the “Cadillac Tax” and it would worsen the underinsurance problem, as insurers and employers would be incentivized to shift more costs to employees and families to avoid the tax.
Fortunately, bipartisan bills, the “Middle Class Health Benefits Tax Repeal Act of 2019” (S. 684 by Sens. Martin Heinrich (D-NM) and Mike Rounds (R-SD) and H.R. 748 by Reps. Joe Courtney (D-CT) and Mike Kelly (R-PA)), have been introduced that would eliminate this unfortunate tax.
As background, the ACA’s “Cadillac Tax” language that would impose a 40 percent excise tax on employer-sponsored health benefits if the value of the employer plan, which is the premium costs for both the employer and employee, exceeds an arbitrarily set $11,200 for individual coverage and $30,150 for family coverage in 2022.
The “Cadillac Tax” was originally set to take effect in 2018 but has been delayed on two occasions, including most recently in the Extension of Continuing Appropriations Act passed by Congress in January 2018.
Support for the provision’s underlying premises are deeply flawed. First, a recent Washington Post editorial claims, “. . . the tax exclusion also incentivizes consumption, because — other things being equal — the more services a plan covers, the bigger the tax benefit.”
That is nonsense. In a series of tweets in support of eliminating the Cadillac Tax, Ben Speilberg correctly points out that health care is not a consumer or luxury good.
For children, comprehensive insurance coverage translates to getting chemotherapy for cancer treatment, wheelchairs and leg braces for children with disabilities, immunizations, and glasses so children can read. Gaining access to a doctor to get medical treatment, an immunization, or chemotherapy is nothing like buying a Mercedes Benz or a Cadillac. As Jonathan Cohn reiterates, “Medicine is not a consumer good.”
Second, supporters assume that private health coverage is overly generous, particularly with respect to family coverage. The vast majority of employer coverage plans share significant costs with employees. It is a myth that private plans are overly generous today.
According to an annual survey of employers by KFF, “On average, covered workers contribute 18% of the premium (or $1,186, on average) for single coverage and 29% of the premium (or $5,547, on average) for family coverage.”
On average, workers contribute 4.68 times more toward premiums for family plans than individual plans, even though the average overall premium cost is 2.84 times more expensive ($19,616 for family plans to $6,896 for individual plans).
These consumer costs are on top of the expenses that an individual or family bears for deductibles, copayments, and benefit limitations. Families USA’s Stan Dorn points out in a Health Affairs piece entitled “The Cadillac Tax: It’s Time to Kill This Health Care Zombie” that the average deductible for family coverage increased from $638 in 2008 to $2,426 in 2018, “nearly four times the average family deductible in 2008.”
First Focus Campaign for Children is particularly concerned that, even though families already pay a much higher share of the costs of coverage than individuals, the “Cadillac Tax” would exacerbate the problem. If allowed to go into effect, the threshold for the excise tax to take effect is set at just 2.69 times the expense of that for individual plans ($11,200 for single coverage and $30,150 for family coverage in 2022), which is below the current 2.84 ratio between individual and family coverage. In other words, the tax would disproportionately hit family coverage plans.
More likely, employers would seek to avoid the tax, but that creates an added incentive to impose higher deductibles and copayments and limit or eliminate certain benefits, particularly for family coverage. This would be most troubling for families with children with disabilities and children with special health care needs.
Once it activates, the tax is likely to spur further cuts to health benefits. A recent analysis in Health Affairs found that, by 2025, the Cadillac tax would affect roughly one out of every four workers receiving ESI — 23.5 percent of those with single coverage and 27.9 percent of people enrolled in family plans. . .
The Cadillac tax will incentivize a large and ever-growing share of employers to reduce the generosity of health insurance, further raising deductibles and other out-of-pocket costs. The non-partisan Congressional Research Service thus found that the Cadillac tax “could lead to an overall decline in the quality of health services financed by private insurance,” with businesses cutting their spending on employee health benefits by $47.6 billion to $69.2 billion in 2025 alone.
One disturbing trend in employer-sponsored coverage has been to impose a per person deductible on top of the premium differential for families. Consequently, a $1,500 deductible for an individual becomes a potential $6,000 deductible for a two-parent family with two children. Children’s health coverage is far less expensive than adult coverage but that fact is typically not adjusted for by per person deductibles.
To protect families from having these trends further incentivized, First Focus Campaign for Children has endorsed the Middle Class Health Benefits Tax Repeal Act of 2019,” as it would fully repeal the “Cadillac Tax.”
The Alliance to Fight the 40, a coalition of businesses, patient advocates, private sector and public sector employer organizations, consumer groups, and other stakeholders that support employer-provided health coverage, also wrote a support letter for the legislation to the U.S. Senate:
Contrary to the notion that only “gold-plated” high-value plans would be affected, the tax will eventually have an impact on virtually all employer plans. The first plans to be hit will not be “Cadillac” plans that have the most extensive benefits — they will be plans that are expensive because they cover older Americans, retirees, women, families and other individuals with chronic health conditions, those who have suffered catastrophic health events, and those living in higher-cost geographic areas.
The letter cites Mercer’s National Survey of Employer-Sponsored Health Plans, which estimates that “[t]wenty-three percent of the plans that trigger the tax in the first two years will have actuarial values in the lowest (i.e. 60–70 percent) allowable range.”
Making health care more unaffordable for families is not a solution to any of the failures of our health care system.
Third, proponents argue that the “Cadillac Tax” is needed to raise revenue. The Washington Post editorial goes so far to make the ridiculous argument that it would be “raising revenue for expanded care for lower-income people.”
That simply is not true. The federal budget does not work that way, as there is no Medicaid Trust Fund for any revenue generated by the imposition of the excise tax. Any money raised simply goes into the Treasury and not to lower-income people or even health care more generally.
Even worse, as employers shift more costs to employees in response to the excise tax, the health care safety net and government programs will likely bear an increased burden as individuals and families attempt to shift their coverage to more affordable options, such Medicaid, the Children’s Health Insurance Program (CHIP), and the ACA exchanges, or use these programs to supplement their increasingly unaffordable private coverage.
Fourth, proponents of the excise tax argue that its repeal would harm efforts to slow the growth of health care costs. However, the vast majority of employers, including our organization, have little ability or way to control health care costs. The consequence is that employers use what little tools they have to simply reduce their own costs by shifting a growing share of the health burden to employees and their families.
Taxing the health benefits of employees does not reduce the health care costs of consumers — it just makes care more expensive and threatens their health.
The Growing Support for Repeal of the “Cadillac Tax”
In fact, the real health care cost issue facing families is the growing crisis of underinsurance. Levey explains:
The explosion in cost-sharing is endangering patients’ health as millions, including those with serious illnesses, skip care, independent research and the Times/KFF poll show.
The shift in costs has also driven growing numbers of Americans with health coverage to charities and crowd-funding sites like GoFundMe in order to defray costs.
Our nation needs to address the growing problem of underinsurance rather than incentivize the expansion of this trend through imposition of the “Cadillac Tax.” Recognizing this, over 650 national, state, and local organizations that represent business, insurers, and consumers that have some together to support repeal of the “Cadillac Tax.”
If there are holdouts on the Democratic side of the aisle, they should recognize that the “Cadillac Tax” is an arbitrary limit on health care spending that is set to grow at a slower rate than expected medical inflation. This should be a familiar concern because it is one of the top reasons why progressive groups strongly oppose arbitrary caps on spending like Medicaid block grants or per capita caps. Arbitrary limits on health care spending would lead to the rationing of care and that will have a disproportionately impact on vulnerable populations, such as people with disabilities and children.
As for any holdouts on the Republican side of the aisle, they should recognize that the “Cadillac Tax” undermines private health coverage helps fuel arguments for single payer, government-run health coverage. If private health coverage cannot be counted on to truly protect people when then need health care coverage, the alternative is an expansion of public coverage, which conservatives oppose.
To find better solutions that will eliminate “economic distortions that drive high costs and inadequate health outcomes in the US health care system,” First Focus on Children has joined Families USA, the American Academy of Family Physicians, the American Benefits Council, the American Federation of State, County and Municipal Employees, the American Federation of Teachers, and the Pacific Business Group on Health as a member of “Consumers First: The Alliance to Make the Health Care System Work for Everyone.”
Consumers First will be focused on six issues for action:
· High and rising health care prices
· Distortions created by provider payments systems
· Increased health care industry consolidation
· Insufficient oversight over nonprofit institutions
· Flawed workforce policy
· Inadequate access to data and transparency
Consumers First believes the “health care system should work for families to ensure the best health possible without threatening their economic independence and vitality.”
Rather than supporting arbitrary caps represented by the “Cadillac Tax” that undermines private health coverage or Medicaid block grants that would harm millions of Americans, it would be far better working to get to the important work of transforming our health care system so that it better serves us all.