By Tim Walker
Last week, in a rare display of bipartisanship, the U.S. House of Representatives voted to repeal the so-called “Cadillac tax,” a 40% tax passed on “high cost” health plans as part of the Affordable Care Act (ACA) in 2010.
The vote in support of the Middle Class Health Benefits Tax Repeal Act (H.R. 748) was overwhelming, 419-6. Amassing such widespread opposition across party lines is no easy feat in today’s hyper-polarized political climate.
But even among the ACA’s strongest supporters, including the National Education Association (NEA), the Cadillac tax, or the excise tax, had to go. NEA was strongly opposed to the provision when the ACA was being debated a decade ago on the grounds that it was a tax on the health benefits of middle class families. Although it was included in the final ACA bill, the tax was not slated for implementation until 2018. Over the past few years, repealing the tax has been one of NEA’s legislative priorities. Working with other unions and allies, NEA has successfully pushed its implementation date to 2022. Today, with the House already taking action, it’s time for the the U.S. Senate to follow suit and eliminate the excise tax once and for all.
Anything But Progressive
The excise tax was included in the ACA ostensibly as a cost control mechanism and revenue-raiser. It would impose a 40% tax on the portion of any premium above an estimated $11,200 for individual coverage and $30,100 for plans for more than one person. By labeling it the “Cadillac Tax,” proponents tried to cast the measure as a progressive taxation on luxurious or “gold-plated” health plans.
In fact, the excise tax isn’t progressive; far from it.
In 2015, NEA released a report showing that the tax was driven less by the generosity of health plans but by other factors, including where health plan members live, their age and sex.
The problem is that the excise tax conflates high premiums with generous health benefits. It applies equally to plans for lower- and higher-income employees and regardless of whether those workers happen to live in parts of the country with unusually high health care costs. Some health plans offering moderate benefits will face a steep tax, while plans with better benefits may not face any tax at all. Similarly, a plan for employees who live in a city with high health care costs might generate a large tax, while employees with the exact same health benefits in a lower-cost area might not be exposed to any tax.
In practice, Laurel Lucia of the Labor Center at UC Berkeley wrote in 2015,” the effect of the excise tax will be regressive because low- and middle-income workers with high cost plans will face more severe consequences than their higher income counterparts.”
Furthermore, because they are more vulnerable to high health care costs, women and older employees would be unfairly and disproportinately affected by the tax.
“Cadillac tax” it is not, says NEA President Lily Eskelsen Garcia. It is an “Age-Gender-Geography Tax.”
Educators Among the Hardest Hit
If the excise tax were to be implemented in 2022, an estimated 17 percent of workers will be affected. Indeed, more and more workers would be subject to the tax over time, since health care costs continue to rise at a faster rate than inflation.
According to an analysis by Health Affairs, individuals in the education profession would be one of the most affected groups.
“Educators are already struggling to make ends meet—they cannot afford to pay even more for health care,” NEA Director of Government Relations Marc Egan wrote in a letter to the House of Representatives on July 14.
Across the country, thanks largely to the #RedforEd Movement, the public finally has taken notice of the steep challenges educators face in making ends meets. Salaries have stagnated or even dipped over the past decade, even as the economic recovery has picked up momentum. The excise tax, if implemented in 2022, will only take take money out of the pockets of educators who may have have accepted lower wages in return for decent health care coverage.
Employers and others are already making moves to avoid or offset the tax, including lower-cost plans, raising deductibles or other ways to shift costs to workers. NEA warns that not only will educators and their families bear the brunt of these cuts, but, because the excise tax was designed to ensure that more and more plans would be hit every year, employer-sponsored health coverage itself could eventually be threatened.
With the House already voting to repeal the excise tax, the U.S. Senate may soon take up the measure, where support for repeal is also strong. It’s time to move the companion bill forward. Contact your senators today to help protect your health benefits.