101 Economists Send Letter to Congress in Support of Cadillac Tax

Published October 4, 2015

These days it seems everyone — Republicans, Democrats, labor unions, big employers — is against the Cadillac tax on health insurance. The provision in Obamacare seeks to fix a World War II-era tax loophole some experts believe has made the market for health care expensive and inefficient.

Despite all the calls for repeal, a group of 101 economists sent a letter to Congress Thursday in support of the tax.

“We, the undersigned health economists and policy analysts, hold widely varying views on other provisions of the Affordable Care Act,” the economists wrote. “But, we unite in urging Congress to take no action to weaken, delay, or reduce the Cadillac tax until and unless it enacts an alternative tax change that would more effectively curtail cost growth.”

Economists Make Their Case

The Cadillac tax goes into effect in 2018 and will require employers to pay a 40 percent tax on the health benefits they provide employees if the plans go over a certain amount ($10,200 for an individual and $27,500 for a family). Many companies are already looking for ways to avoid the tax, including paring down health plans and pushing more of the cost onto employees.

The economists argue the Cadillac tax will increase wages and other fringe benefits as employers shift away from compensating employees through overly generous insurance that spurs overuse of the health-care system while driving up spending. The tax is estimated to bring in $91 billion to the federal government over the next ten years.

The Post quoted Robert Helms, an economist and resident scholar with the American Enterprise Institute who said he was not asked to sign the letter, saying, “The so-called Cadillac tax is about the only thing in the bill I liked. I’d hate to see them repeal it.”

The Post also quoted Henry Aaron, an economist at the Brookings Institution, saying,  “The view among economists has been pretty much bipartisan. The purpose of insurance is to cover costs that pose undue hardships; you need to provide financial protection so that health-care costs are not ruinous for people and it doesn’t obstruct people from getting needed care. But insurance isn’t meant to pay every single bill.”

Despite support from economists, the Cadillac tax doesn’t sound good to just about anyone else. Opponents believe it will penalize employers with higher health-care costs due to having disabled workers or premature babies, or punish employers operating in specific industries or geographic areas where health insurance is expensive. It punishes companies for costs that they are powerless to control.

Kenneth Artz ([email protected]) is managing editor of Health Care News.

Internet Info

Carolyn Johnson, “101 economists make case for health-care law’s Cadillac tax,” Washington Post, October 1, 2015: http://www.washingtonpost.com/news/wonkblog/wp/2015/10/01/101-economists-just-signed-a-love-letter-to-the-obamacare-provision-everyone-else-hates/

Letter to the Chairmen and Ranking Members of the House Ways and Means and Senate Finance Committees, October 1, 2015: http://www.cbpp.org/sites/default/files/atoms/files/cadillac_tax_letter.pdf