The Affordable Care Act was signed into law on March 23, 2010. On March 24, and ever since, Republicans have fought tooth and nail to chip away at and dismantle President Barack Obama’s signature domestic achievement.
The newest threat to the law, though, is unique. It came this week from one of Obama’s friendliest allies – the Democratic front-runner to succeed him in the Oval Office.
Hillary Clinton, Obama’s former secretary of state, said Tuesday that she favored repealing the law’s so-called Cadillac tax.
“Too many Americans are struggling to meet the cost of rising deductibles and drug prices. That’s why, among other steps, I encourage Congress to repeal the so-called Cadillac tax, which applies to some employer-based health plans, and to fully pay for the cost of repeal,” Clinton said in a statement.
Repeal of the tax, which isn’t scheduled to be implemented until 2018, doesn’t necessarily represent a threat to the law itself. Coverage expansion, both through federal- and state-based insurance marketplaces and through the federal Medicaid program, can go on without the tax.
But its repeal would pose a significant problem for one of Obamacare’s main goals: constraining healthcare costs in the US.
Clinton’s statement quickly set off a firestorm. In the days that have followed her statement, economists and deficit hawks, who favor the tax, have expressed concern and defended the important role they claim it will play in the overall effectiveness of the law.
The tax, however, is reviled by just about everyone else – especially labor unions, which represent a major Democratic constituency. It has crept into the presidential campaign, as both top Democratic contenders are now calling for its repeal.
“It’s big,” Larry Levitt, the senior vice president for special initiatives at the Kaiser Family Foundation, told Business Insider of Clinton’s call for repeal. “It is hard to think of a healthcare issue that unifies politicians and interest groups more than the ‘Cadillac’ plan tax.”
- REUTERS/Larry Downing (UNITED STATES)
Democrats often argue the tax – a 40% excise tax on employer plans whose premiums exceed $10,200 for individuals and $27,500 for families – is in reality more a tax on most employer-sponsored health plans.
Proponents say that over time, employers will likely maneuver around the excise tax by looking for cheaper, more efficient plans with more affordable premiums. But critics say employers are more likely to shift the costs to workers with higher deductibles, co-payments, and other costs. Labor unions, in particular, have taken pride in negotiating premium benefits for their workers – and some of those resulting plans would likely be affected by the tax.
Sen. Bernie Sanders (I-Vermont), Clinton’s main rival in the Democratic presidential primary race, and eight Democratic senators recently introduced legislation to repeal the tax. When introducing the legislation, Sanders dismissed the conventional wisdom that a “Cadillac” tax would disproportionately affect more well-off plans.
“Some have said that this tax only falls on ‘Cadillac’ healthcare plans, but the reality is that the plans this bill will tax are more like Chevrolets,” Sanders quipped.
They have public opinion on their side – a recent poll from the Kaiser Family Foundation found that 60% of Americans said they oppose the tax. (Such vehement opposition changes when respondents heard more about the tax, including that it could help reduce healthcare costs.)
But there’s a catch – an $87 billion catch. According to the Committee for a Responsible Federal Budget, the tax is expected to bring in $87 billion in revenue by 2025. Revenue brought in from the tax is expected to grow exponentially in the years that follow.
Economists and those who have pushed the US to rein in healthcare costs consider it essential to balance out the cost that comes from one of Obamacare’s other major goals: universal health coverage.
On Thursday, 101 health economists signed a letter to key congressional players defending the controversial tax. The letter included names from the administrations of both Republican and Democratic presidents who hold different views on the law as a whole.
Some of the more notable signers of the letter included Jonathan Gruber, the MIT economist and Obamacare architect who came under fire last year for comments he made about the law leading up to its passage; Douglas Elmendorf, the director of the Congressional Budget Office from 2009 until earlier this year; and Ezekiel Emanuel, a senior fellow at the Center for American Progress whose brother, Rahm, was Obama’s chief of staff
“We, the undersigned health economists and policy analysts, hold widely varying views on other provisions of the Affordable Care Act, and we recognize that measures other than the Cadillac tax could have been used to restrict the open-ended health insurance tax break,” the economists wrote.
- Jason Miczek
Emanuel and Bob Kocher, a former special adviser to Obama on healthcare and economic policy, further expanded on their stance in a New York Times op-ed on Friday. They argued that the rich benefit more from the current government subsidy of employer-sponsored health insurance that the tax would fix.
“The subsidy has created serious problems. For one thing, it is hugely regressive. The rich receive nearly triple the financial benefits from the tax exclusion than those with lower incomes because they are taxed at a higher rate and tend to have much more expensive health insurance,” they wrote.
They added: “The health care tax exclusion is the single largest tax break in the United States, reducing federal revenue by more than $250 billion per year.”