New Legislation Adds Momentum to Cadillac Tax Repeal

But this opens the door for multi-layered Obamacare political drama, with risks for both parties.

US senator Dean Heller.
YAMIL LAGE/AFP/Getty Images
Caitlin Owens
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Caitlin Owens
Aug. 28, 2015, 5 a.m.

Re­pub­lic­an Sen. Dean Heller will in­tro­duce le­gis­la­tion to re­peal Obama­care’s Ca­dillac tax after Con­gress re­sumes, Na­tion­al Journ­al has learned, and the fight to get rid of the tax will be­gin in the Sen­ate.

But for once, Re­pub­lic­ans are not alone in call­ing for a re­peal of a piece of the Af­ford­able Care Act. The tax on high-cost health care plans that goes in­to ef­fect in 2018 is the sub­ject of plenty of chat­ter with­in both parties, and dozens of groups off the Hill are lob­by­ing to make sure it stays that way.

But the vi­cious polit­ics sur­round­ing Obama­care will com­plic­ate any ef­fort to get a re­peal across the fin­ish line.

“Re­pub­lic­ans want to, by and large, keep up a front against the Af­ford­able Care Act, and Demo­crats are re­luct­ant to ad­mit there are some prob­lems,” said Timothy Jost, a law pro­fess­or at Wash­ing­ton and Lee who is gen­er­ally sup­port­ive of the ACA.

That’s the simple ver­sion of a polit­ic­al drama with sev­er­al lay­ers, which will start to un­fold when Con­gress ends.

“I think it’s com­plic­ated, I guess is the short an­swer,” said Lan­hee Chen, a Stan­ford Law School pro­fess­or. “But I just think it’s slightly less com­plic­ated for Re­pub­lic­ans, be­cause Demo­crats own it. It’s part of Obama­care and they own it.”

Both parties face tricky polit­ics in re­peal­ing the tax. Re­pub­lic­ans will be work­ing to re­peal something that is not only an anti-Obama­care talk­ing point, but is also ac­tu­ally sim­il­ar to com­pon­ents of con­ser­vat­ive health care policy. And Demo­crats are deal­ing with a pro­vi­sion of Obama­care that’s un­pop­u­lar with some of their con­stitu­ents, yet one that helps pay for the law - something they want to con­tin­ue to do.

“The fact that there is Demo­crat­ic sup­port for Ca­dillac tax re­peal cuts both ways – it would give Demo­crats and uni­ons a win, but it is an op­por­tun­ity to re­peal a key fea­ture of the Af­ford­able Care Act with bi­par­tis­an sup­port,” said Ed­ward Loren­zen, a seni­or ad­visor on the Com­mit­tee for a Re­spons­ible Fed­er­al Budget. “The big­ger is­sue polit­ic­ally is wheth­er con­ser­vat­ives who want to re­peal the en­tire ACA would want to re­peal one of the more con­tro­ver­sial pro­vi­sions which they may view as a li­ab­il­ity to use to bring down the en­tire bill.”

The so-called Ca­dillac tax is a 40 per­cent ex­cise tax on em­ploy­er-provided health in­sur­ance be­ne­fits over a cer­tain threshold. It ad­dresses the gov­ern­ment rev­en­ue lost by the tax ex­clu­sion of em­ploy­er-provided health care plans, while sim­ul­tan­eously at­tempt­ing to con­tain health care costs and gen­er­ate rev­en­ue for the Af­ford­able Care Act.

“Eco­nom­ists have al­ways be­lieved that the tax sub­sidy for em­ploy­er-provided health in­sur­ance leads people to be, in ef­fect, over-in­sured,” said Larry Levitt, seni­or vice pres­id­ent of the Kais­er Fam­ily Found­a­tion, adding that the Ca­dillac tax is a “cost-con­tain­ing ef­fect be­cause it dis­cour­ages plans from hit­ting the threshold. It provides in­cent­ive to cut back on the cost of cov­er­age.”

But that’s ex­actly the prob­lem: Op­pon­ents of the tax say that em­ploy­ees are already see­ing de­creased be­ne­fits from em­ploy­ers, but are not be­ing com­pensated by in­creased tax­able wages - which was the­or­et­ic­ally what was sup­posed to hap­pen. While eco­nom­ists and budget hawks are gen­er­ally fans of the tax, al­most every­one else is not.

A Kais­er study found that in 2018, about a quarter of em­ploy­ers of­fer­ing health be­ne­fits could be sub­ject to the tax un­less they change their plans.

A group of stake­hold­ers ran­ging from uni­ons to an or­gan­iz­a­tion rep­res­ent­ing For­tune 500 com­pan­ies have teamed up and are call­ing them­selves the Al­li­ance to Fight the 40. And in the House, two bills have already been in­tro­duced aimed at re­peal­ing the Ca­dillac tax. One was in­tro­duced by Demo­crat­ic Rep. Joe Court­ney and has 132 co­spon­sors, 118 Demo­crats and 14 Re­pub­lic­ans. A second bill was in­tro­duced by Re­pub­lic­an Rep. Frank Guinta and has 81 co­spon­sors, all Re­pub­lic­an.

But both parties have plenty of reas­ons to be hes­it­ant about the le­gis­la­tion and un­sure of its fu­ture. For Re­pub­lic­ans — who, as the ma­jor­ity party, will de­cide wheth­er or not the le­gis­la­tion moves — get­ting rid of the Ca­dillac tax also means elim­in­at­ing one of the most un­pop­u­lar parts of Obama­care as they con­tin­ue to try to re­peal the en­tire law.

“If you want to re­peal the Af­ford­able Care Act, you want to have the most op­pos­i­tion to the bill. If you were able to re­peal some of the more con­tro­ver­sial pro­vi­sions, that might take some of the mo­mentum away,” Loren­zen said.

“Re­pub­lic­ans by and large be­lieve the Pres­id­ent’s health law should be re­pealed in its en­tirety and that in­cludes Obama­care’s Ca­dillac tax. It’s a mis­guided pro­vi­sion that cre­ates a dra­coni­an policy that will hit count­less Amer­ic­ans with a 40 per­cent ex­cise tax,” said a spokes­wo­man for the Sen­ate Fin­ance Com­mit­tee ma­jor­ity, which has jur­is­dic­tion over the tax.

Neither the Fin­ance Com­mit­tee nor the Ways and Means Com­mit­tee, which has jur­is­dic­tion over the tax in the House, has in­dic­ated wheth­er they will at­tempt to lit­ig­ate the re­peal. If they do de­cide to move for­ward on it, however, they are al­most cer­tain to re­ceive back­lash from some of the more con­ser­vat­ive mem­bers of the GOP.

“Most GOP­ers don’t be­lieve re­con­cili­ation or any oth­er par­lia­ment­ary pro­ced­ure will res­ult in re­peal, so they be­lieve fixes are in or­der,” said a lob­by­ist fa­mil­i­ar with the situ­ation. “Un­for­tu­nately, polit­ics says they must do re­peal first… Be­cause if they don’t people will won­der why they’re fix­ing something they’re go­ing to try and re­peal later.”

An­oth­er catch for Re­pub­lic­ans who want to re­peal the Ca­dillac tax is it ac­tu­ally is pretty sim­il­ar to their own policy pre­scrip­tions for tax treat­ment of em­ploy­er-based in­sur­ance. Re­peal­ing it now may hurt them later if they try to do something sim­il­ar in their own health care plan.

The lob­by­ist said that he be­lieves Re­pub­lic­an lead­er­ship will ul­ti­mately want to work across the aisle to pass the re­peal. However, that’s when the door opens for Demo­crats to have a big prob­lem.

Tak­ing up any re­form to Obama­care ad­mits the law is im­per­fect, al­though many Demo­crats have openly ac­know­ledged the law isn’t per­fect and needs to be tweaked. But once they get in­to the ne­go­ti­at­ing pro­cess, the biggest hurdle will al­most cer­tainly be how to pay for a re­peal of the tax.

“The one thing that will slow this down is if Demo­crats all of the sud­den start talk­ing about the im­port­ance of fisc­al re­spons­ib­il­ity and op­pos­ing any bill that’s not paid for. Or if they ob­ject to cer­tain GOP pro­pos­als to pay for it,” said the lob­by­ist. “The GOP will won­der why…do I have to use one…of my tax pay­fors, which I could use for over­all rate re­duc­tion, to pay for the Demo­crats’ Ca­dillac tax prob­lem.”

There are sev­er­al reas­ons Demo­crats would want to pay for a re­peal. First, the tax helps pay for the Af­ford­able Care Act, and re­peal­ing it without a re­place­ment will add to the de­fi­cit. Second, they have already put a stake in the ground that re­peal­ing pieces of Obama­care is only ac­cept­able if the re­peals are paid for — a line cent­ral to sev­er­al Demo­crats’ op­pos­i­tion to the Re­pub­lic­an-favored med­ic­al device tax re­peal that has passed with bi­par­tis­an sup­port in the House and is pending in the Sen­ate.

“Re­peal­ing it would be very ex­pens­ive be­cause the con­gress de­cided to use these funds to pay for care un­der the ex­changes and Medi­caid ex­pan­sion,” said Dan Mendel­son, CEO of Avalere Health. “This is like the very ex­pens­ive suit you see in the win­dow. Every­one likes the look of it, but it might just be out of reach.”

Yet some of the biggest op­pon­ents of the Ca­dillac tax are uni­ons, a group that has the ear of Demo­crats.

And then there’s al­ways the ques­tion of wheth­er the pres­id­ent would ever sign le­gis­la­tion re­peal­ing any part of his sig­na­ture do­mest­ic policy.

But to some Demo­crats, the an­swer is not ne­ces­sar­ily black and white; there’s plenty of room for gray when it comes to both the Ca­dillac tax and the law’s med­ic­al device tax, an­oth­er re­peal tar­get that has bi­par­tis­an sup­port.

“It’s not either no re­peal or full re­peal,” said a Sen­ate Demo­crat­ic aide. “There are tweaks you can make to both of them…that don’t cost as much.”

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