There's a bipartisan move to eliminate the Affordable Care Act's excise tax on employer sponsored health insurance plans that cost more than $27,500 (family) or $12,700 (individual) in 2018. Current bills to repeal this tax have been cosponsored by 132 Representatives in the House and 7 Senators. The New York Times editorialized against repeal in today's paper.
The broad based coalition that opposes the excise tax includes:
· Employers. Who wants to be taxed?
· Labor: The excise tax will make it tougher to negotiate higher benefits, and will take dollars away from potential raises.
· Health plans, which don't want to administer this and be blamed for it
· Anti-tax advocates: who don't want the feds to collect extra taxes
· Equality advocates: There's no adjustment - so employers with older employees, sicker employees, or with workers in expensive areas will now be doubly penalized
· Urban advocates: Health care costs in many metro areas are high, with large portions of the population cared for by academic medical centers
· Rural advocates: Health care costs on single hospital rural areas also tend to be high since there is no competition
There are serious problems with this excise tax as it will be administered.
The first problem is fairness. A “fair” excise tax would either account for demographics, illness, and geography. All these adjustments would increase fairness, but they would also increase complexity and the propensity to game the system, though. Another way to be sure that the excise tax didn’t penalize employers for elements beyond their control would be to levy the tax if the total actuarial value of the health plan was high. That would penalize plans that were “too rich”, and many economists believe that these plans are responsible for excess spending. It would also discourage narrow network plans or some staff-model plans like Kaiser that accomplish high actuarial value without an especially high price.
The second problem is that the excise tax has helped encourage substantial cost shifting to employees. One way to pretty much guarantee an employer’s health plan will cost less is to “buy down” to a lower value plan. These low value plans, though, are bad news for those of modest means, for whom a $3000 or higher family deductible is an unbearable barrier to obtaining care.
My sense is that the threat of the excise tax has helped convince employers to substantially decrease the value of their health plans already, and I don’t think we need this tax to further discourage overly generous plans. Making it fair through adjustments would be complicated, and pegging it to actuarial value would discourage plans with meaningful coverage for those of modest means.
It’s not likely that Congress can pass a nuanced bill to address these problems with the excise tax, nor is it likely that the current Congress can replace the estimated $84 billion in revenue from the excise tax over its first decade. Therefore, a repeal would likely add to the projected deficit. This would cost angst to those who dislike allowing the government to run a deficit, but will not be a significant economic drag at this point.
Congress eliminated the physician “sustainable growth rate” pay cuts without coming up with respecting budget neutrality; I suspect they do the same for the excise tax. Opponents of the ACA can declare that they have repealed a piece of the law, and supporters can breathe another sigh of relief because this tax will make the ACA less popular and it is not critical to the ACA's success.
This shows that the portion of Americans facing high deductibles is already quite high. The exercise tax threshold would only increase with the consumer price index, pushing employers to increase cost sharing each successive year to avoid the tax. Source: KFF HRET Employer Sponsored Health Benefit survey, 2014.
