For over 50 years, Bloomberg Tax’s renowned flagship daily news service, Daily Tax Report® has helped leading practitioners and policymakers stay on the cutting edge of taxation and...
House Republicans could run into trouble selling a proposal to cap the employer health insurance tax exclusion as one option to pay for a repeal of the Affordable Care Act, because critics warn the option is just a rejiggered version of the much-maligned “Cadillac tax.”
Capping the exclusion—which exempts employer-paid premiums for health insurance from federal income and payroll taxes—is one option Republicans are considering to help fund changes to the system. But some say the change would hurt low- and middle-income workers by increasing their tax bills and may cause employers to scale back their plans.
The same criticism has been leveled against the Cadillac tax—a 40 percent tax on the parts of high-cost employer health plans that exceed the limits. The tax is delayed until 2020 but remains a top target of Republicans as they move to kill the law’s tax provisions. The tax is perhaps one of the most controversial elements of the ACA, and is opposed by Democrats and Republicans.
“The differences are at the end of the day pretty minor, so it’s interesting those so opposed to the Cadillac tax would support another way of capping the exclusion,” Paul N. Van de Water, a senior fellow at the Center on Budget and Policy Priorities, told Bloomberg BNA.
The exclusion remains in two replacement bills introduced within the last few weeks in the House and Senate: S. 222 from Sen Rand Paul (R-Ky.) and H.R. 1072, the companion bill from Rep. Mark Sanford (R-S.C.). The hard-right House Freedom Caucus backed Sanford’s bill Feb. 15.
Then-Senate Finance Committee Chairman Max Baucus (D-Mont.) supported modifying the exclusion in 2008 as a revenue raiser for a health care overhaul, but ran into political opposition.
Still, the idea is a long-standing Republican tenet and could solve a nagging question: how to pay for an ACA replacement. The proposal, still being developed, was discussed during a Feb. 16 House GOP conference meeting where lawmakers explored elements of the law and how to alter it. No firm decision has been reached on how to handle the exclusion yet, several lawmakers told Bloomberg BNA.
Speaking to reporters Feb. 16, House Ways and Means Chairman Kevin Brady (R-Texas) said if lawmakers can “unlock” the tax break, they could use it to create a tax credit that can help individuals purchase insurance. Brady said he doesn’t see the move as a tax increase, and said it will give individuals more flexibility to pick coverage that is right for them.
Brady said lawmakers do want to preserve employer-sponsored healthcare, but want to “do it in a way that can help finance the individual tax credit.” The tax break now totals about $3.6 trillion over 10 years, Brady said during the Republican retreat in Philadelphia late last month.
“That approach and giving people individual credit has been a staple of nearly every Republican tax plan for a long time,” he said.
Lawmakers haven’t settled on a credit or cap amount, Brady said, adding it is one option they are considering. Other ways to pay for a replacement could include trimming back individual credits, limiting health savings accounts or keeping some of the ACA’s taxes in place, as is done in a Senate replacement bill, Brady said. However, Brady reiterated to reporters he is committed to repealing the law’s taxes.
Health and Human Services Secretary Tom Price introduced an ACA repeal bill (H.R. 2300) while he was in the House in 2015 that capped the exclusion at $8,000 for an employee and $20,000 for a family. Lawmakers are “looking at the range,” Brady said, adding levels will be determined by how health plans change once states have more control following ACA repeal.
Price, a former member of the House Ways and Means Committee, met with lawmakers during their Feb. 16 meeting, though he didn’t come with a specific plan or instructions, several lawmakers told Bloomberg BNA after the meeting. Now that Price has been installed in his new post, he is expected to be a key figure in efforts to dismantle the law.
Members of the labor community are already contacting rank and file members telling them of the potential damage an exclusion cap could create, and the message is beginning to resonate, Chris Condeluci, a principal at CC Law & Policy PLLC, told Bloomberg BNA.
Condeluci, a former tax and benefits counsel to the Senate Finance Committee, helped develop elements of the ACA, including the law’s new taxes. He said the argument against an exclusion is that there are more effective ways to reduce health care spending, and if it leads to employers dropping plans entirely, that would be problematic because the system has “generally worked.”
“You do have this significant political pressure to go in a different direction and I’m not sure who wins at the end of the day. Will folks say ‘No this is too far of a bridge for us to cross and you’re creating another Cadillac tax which we don’t like so we’re not going to support the overall bill if it’s in there?’” Condeluci said.
Price’s 2015 plan would increase tax liability for low-income families by 25 percent, the Alliance to Fight the 40—a coalition of unions, businesses and health care companies seeking a repeal of the Cadillac tax—said in a Feb. 16 statement to Bloomberg BNA.
The change could disrupt employer-sponsored plans, Rep. Sander M. Levin (D-Mich.) told Bloomberg BNA.
“Employer based coverage has been a foundation for health care in this country. You’re going to end a deduction and you’re going to charge people. The way they are framing this more and more people are going to leave insurance, because employers are going to say, ‘take your $2,000 tax credit.’ It’s not limited by income,” Levin, a Ways and Means member, said.
Still, some change is likely necessary because the Cadillac tax is “an exclusion cap stuck together with duct tape,” Robert Graboyes, a senior research fellow at George Mason University’s Mercatus Center, told Bloomberg BNA.
“Probably any action that one takes in this realm is going to be seen as problematic by somebody,” he said.
With assistance from Laura Davison and Aaron E. Lorenzo in Washington.
To contact the reporter on this story: Colleen Murphy in Washington at firstname.lastname@example.org
To contact the editor responsible for this story: Meg Shreve at email@example.com
Copyright © 2017 The Bureau of National Affairs, Inc. All Rights Reserved.
All Bloomberg BNA treatises are available on standing order, which ensures you will always receive the most current edition of the book or supplement of the title you have ordered from Bloomberg BNA’s book division. As soon as a new supplement or edition is published (usually annually) for a title you’ve previously purchased and requested to be placed on standing order, we’ll ship it to you to review for 30 days without any obligation. During this period, you can either (a) honor the invoice and receive a 5% discount (in addition to any other discounts you may qualify for) off the then-current price of the update, plus shipping and handling or (b) return the book(s), in which case, your invoice will be cancelled upon receipt of the book(s). Call us for a prepaid UPS label for your return. It’s as simple and easy as that. Most importantly, standing orders mean you will never have to worry about the timeliness of the information you’re relying on. And, you may discontinue standing orders at any time by contacting us at 1.800.960.1220 or by sending an email to firstname.lastname@example.org.
Put me on standing order at a 5% discount off list price of all future updates, in addition to any other discounts I may quality for. (Returnable within 30 days.)
Notify me when updates are available (No standing order will be created).
This Bloomberg BNA report is available on standing order, which ensures you will all receive the latest edition. This report is updated annually and we will send you the latest edition once it has been published. By signing up for standing order you will never have to worry about the timeliness of the information you need. And, you may discontinue standing orders at any time by contacting us at 1.800.372.1033, option 5, or by sending us an email to email@example.com.
Put me on standing order
Notify me when new releases are available (no standing order will be created)