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Growing Chorus Calls Cadillac Health Care Tax “Bad Idea”

January 12, 2010

Yesterday, leaders of the nation’s largest unions pointedly told the President that his plan to tax health care benefits for the first time was a bad idea. This morning, in a column printed by the Washington Post, Fortune magazine’s senior editor at large Allan Sloan, noted that upon closer inspection “you come away far less impressed” with the tax.  Why?  Primarily, because “the biggest portion of the money [the tax raises] comes from people who make less than $200,000.”  Below are recent statements about an analysis of this proposed new tax on health care benefits.

CMS & CBO: Millions of American workers to pay the Democrats’ new tax.

  • The non-partisan actuaries at the Centers for Medicare and Medicaid Services (CMS) predicted that under the Democrats’ Senate-passed health bill more than one in five workers would be affected by the 40% tax on “Cadillac” health care benefits.*
  • The non-partisan analysts at the Congressional Budget Office (CBO) believe that in 2016, a substantially similar proposal to the Democrats’ Senate-passed health bill would result in 30 million people with employer-based health insurance being affected by the new tax.**   

JCT: Middle class families hardest hit and more and more get hit.

  • The non-partisan Joint Committee on Taxation (JCT) analysis of a similar version of the Democrats’ Senate-passed tax on health benefits found 84% of the revenues raised from the tax and 90% of the people paying the tax in 2019 will be those earning less than $200,000 – the very same Americans that then-Senator Obama promised would not see a tax increase if he were elected President.***
  • That same JCT analysis concluded that in 2019, the average married couple with an income between $50,000 and $75,000 would pay close to an additional $1,000 in taxes because of this policy.
  • The proportion of Americans affected would continue to grow over time because the benefit threshold, the Democrat-determined amount above which benefits would be taxed, would grow at a slower rate than the price of health insurance.  Meaning, every year, a growing number of Americans will feel the bite of this tax.  For example, the JCT analysis shows the tax raises more than twice as much in 2019 as in 2015 ($34.6 billion v. $17 billion).****
  • In fact, an analysis by the Joint Committee on Taxation notes that the share of plans offered by employers that will be expensive enough to trigger the tax is rising by at least 2% a year.*****  So even if CBO is correct that “only” one in five is affected by it in 2016, others won’t have long to wait before feeling its pinch. **   

Where you live may increase your risk of paying the 40% health care tax:

  • Health insurance premiums vary substantially across states.  The following 10 states have, on average, the most expensive health insurance premiums.******   Residents in these states would be more likely to be subjected to the 40% tax on health insurance coverage sooner, but as noted above, the creeping grip of this tax will affect more and more families every year.

States with Most Expensive Employer-Based Health Insurance Premiums 

  

International Association of Fire Fighters: Workers will not tolerate this tax. 

  • “Now, President Obama supports the misguided excise tax passed by the Senate. The Senate bill will either subject the health care coverage provided to thousands of America’s fire fighters to a tax or those benefits will be slashed to avoid the tax.”
  • “We have made it clear to every senator and representative on Capitol Hill and President Obama that we are fully and completely opposed to this tax.”
  • “The president’s support for the excise tax is a huge disappointment and cannot be ignored. If President Obama continues to support it and signs a bill that includes the excise tax on workers, we will hold him accountable.”  
Allan Sloan, Fortune Magazine Senior Editor At Large: Tax is a bad idea.
  • “You discover that more than 80 percent of the money it raises would come from individuals paying higher income, Social Security and Medicare taxes…” 
  • “I just think it discriminates unfairly against people who are more expensive to insure because they’re older, live in high-cost areas or both.”  

* Centers for Medicare and Medicaid Services, Office of the Actuary, Estimated Financial Effects of the Patient Protection and Affordable Care Act as passed by the Senate on December 24, 2009, January 8, 2010. 
** Congressional Budget Office, An Analysis of Health Insurance Premiums Under the Patient Protection and Affordable Care Act, November 30, 2009, http://www.cbo.gov/ftpdocs/107xx/doc10781/11-30-Premiums.pdf.
*** Joint Committee on Taxation, Distributional Effects of a Proposal to Impose a 40 Percent Excise Tax on Health Coverage in Excess of $8,500 /$23,000, November 19, 2009.
 **** Joint Committee on Taxation, Estimated Revenue Effects of the Manager’s Amendment to the Revenue Provisions Contained in the “Patient Protection and Affordable Care Act”, JCX-61-09, December 19, 2009
http://www.jct.gov/publications.html?func=startdown&id=3641
***** Letter to The Honorable Joe Courtney from Thomas Barthold, Staff Director, Joint Committee on Taxation, December 8, 2009.  http://courtney.house.gov/uploads/12%208%2009_JCT%20Report%20Response_New%20Thresholds.pdf
****** Based on data derived from the Medical Expenditure Panel Survey (2008), available online at http://www.meps.ahrq.gov/mepsweb/data_stats/quick_tables_results.jsp?component=2&subcomponent=2&year=-1&tableSeries=10&tableSubSeries=&searchText=&searchMethod=1&Action=Search. 

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