A Legislative Victory for Employers
A coalition of business groups can savor -- for now -- the demise of a proposal in Congress to cap long-established health-insurance tax exemptions worth billions of dollars annually to employers and employees.
By Jack Robinson
Little noticed in the recent Congressional debate about overhauling the Affordable Care Act was a proposal to limit the traditional tax exemption for employer contributions to company-sponsored health plans. Had it been included in a final bill that could win approval from fractious lawmakers, the provision would have drastically limited a tax benefit to employers and employees that a March 2016 Congressional Budget Office report estimated is worth at least $266 billion a year.
Instead, a coalition of business groups can savor -- for now -- a legislative victory. The GOP-led Congress, of course, has thus far failed to follow through on vows to repeal and replace the ACA. And the idea of capping the tax exemption, though it was included in House Speaker Paul Ryan's 2016 budget blueprint, has all but vanished.
What happened? James Gelfand puts it succinctly: "The business community nuked it from orbit," he says, laughing at the video-gaming reference. Gelfand is vice president for health policy with the ERISA Committee, an association of large employers that lobbies on benefits issues. Along with other trade groups, the committee mounted a furious assault on the tax proposal last year.
The business coalition, which also includes the U.S. Chamber of Commerce and Society for Human Resource Management, also opposes the ACA's 40 percent "Cadillac tax" on especially generous health plans. That tax, to be paid by employers, is now due to take effect in 2020.
Like the Cadillac tax, the proposed cap on health-plan tax exemptions was meant to ease upward pressure on the cost of healthcare. Proponents argue that tax-free health plans encourage employees to overspend on care.
"Such coverage makes consumers less price-sensitive and promotes the use of medical services that may provide little value," writes Joseph Antos, an American Enterprise Institute scholar, in a December 2016 op-ed supporting a cap on health-plan tax exemptions.
In lobbying Congress during the first half of 2017, as the latest healthcare debate was warming up, the business coalition argued that both the Cadillac tax and proposed cap on exemptions inevitably would hurt the estimated 155 million Americans covered by employer-sponsored health plans.
Taxing health benefits by placing a cap on the individual tax exclusion for employer-sponsored insurance will not help middle-class families," the business coalition wrote in a June letter to Senate leaders. "Instead, taxing health benefits would constitute a tax increase for millions of Americans who are already struggling to afford health insurance.
"This policy would discourage lower-wage workers from enrolling in employer-provided insurance, potentially leaving them vulnerable and uninsured or in unstable individual market plans."
Gelfand says the business coalition lobbied hard to dispel "myths" offered by supporters of the cap on tax exemptions. Among them, he says, is the claim that employers would raise cash wages if they didn't have a tax incentive to spend that money on healthcare insurance premiums instead. Another myth, he says, is the notion that good health plans push up medical costs for everyone.
"Their perception is that [employer-sponsored] health benefits are too good -- overly generous -- that they cover too much of the cost," Gelfand says. In the worldview of proponents of a cap on tax emptions, he says, "everyone would have a high-deductible plan" instead.
These were not easy conversations with lawmakers, Gelfand says, given the complexity of healthcare finance.
"Once you start talking about [healthcare] plan design," he says, "there's not a lot of knowledge on Capitol Hill."
It's unclear when -- or if -- the proposal to cap health-plan exemptions may rise again in Washington. Although the repeal-and-replace debate is over, tax reform remains on the menu for Congress, Gelfand says. But he still doesn't see the exemption cap returning as an immediate threat.
"This proposal is dead, for the time being," Gelfand says.
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