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Tax on ‘Cadillac’ health plans splits leaders

Clinton, Sanders decry added costs; Obama sees it as way to control spending

Democratic Senator Ed Markey supports repealing the tax because of the “large burden” it puts on middle-class families, his spokeswoman said. But he has said that the lost revenue would have to be replaced. Pablo Martinez Monsivais/Associated Press/File 2014/Associated Press

WASHINGTON — The White House has launched a bid to preserve a tax on generous, employer-sponsored insurance plans that underpins President Obama’s health care law, trying to stem a political tide after Hillary Clinton broke with Obama and called for its repeal.

Targeting the unpopular “Cadillac tax,’’ which begins in 2018, Clinton says consumers and their employers should not be saddled with new costs to achieve reductions in medical spending.

But many health care economists contend generous insurance plans lead to wasteful, unnecessary care. Imposing the tax should encourage employers to make coverage less generous, which means workers will be hit with more costs in the form of deductibles and copayments.


And that, in theory, will force those consumers to become more discerning, skip wasteful care and duplicative tests, and drive stronger competition in the medical marketplace.

Jason Furman, chairman of Obama’s Council of Economic Advisers, calls the Cadillac tax one of the law’s most important tools for constraining the rising cost of health care. Scrapping or delaying the tax, he contends, would have “serious negative consequences.”

“It is perhaps the single biggest leverage we have on health costs in the private sector,” Furman said in an interview with The Boston Globe.

The tax would affect employer-sponsored plans whose total costs exceed $10,200 a year for individual coverage and $27,500 for families. Employers would be taxed 40 percent on the amount that exceeds those thresholds.

The tax is expected to generate $87 billion in revenue over the first eight years to help pay for the insurance subsidies that low-income Americans receive under the Affordable Care Act, according to a June analysis by the Congressional Budget Office.

Unions denounce the tax as punitive because it would erode the generous health benefits many members enjoy. Others say the tax is unfair because companies in regions with high health care costs, such as New England, are subject to the tax even if the benefits offered are just average.


“These are not grandiose plans,” said Rich Gulla, president of the State Employees’ Association of New Hampshire/SEIU, who fears the cost of the tax will be passed on to employees. “You go into state service knowing that you’re going to be taken care of in health care and in retirement. What was once promised as fully paid health care now comes with deductibles and copays.”

The Obama administration is facing increasing pressure to defend details of the president’s signature accomplishment from attack not only by Republicans in Congress, who have voted more than 50 times to repeal the landmark health law, but by some Democrats.

Promising to roll back the tax benefits Clinton politically as she specifically courts union support for her presidential run. But opposition to the tax goes well beyond that and cuts across party lines.

A dozen Democratic senators, including Bernie Sanders, Clinton’s closest rival for the party’s nomination, introduced a bill last month to repeal the tax. More than 100 House Republicans, lead by Representative Frank Guinta of New Hampshire, are also targeting the unpopular tax.

The tax “punishes hard working Americans,” Sanders said in a statement, adding that it more resembles a Chevy tax than a Cadillac tax. “Workers have fought hard to negotiate decent healthcare benefits, often in exchange for lower pay.”

A spokeswoman for Senator Elizabeth Warren, a Massachusetts Democrat, said she believes a repeal of the tax needs to be paid for and “accompanied by policies that drive down costs and reduce waste in the health care system.”


Senator Ed Markey, who has endorsed Clinton, also supports repealing the tax because of the “large burden” it places on middle-class families, said his spokeswoman. The Massachusetts Democrat says the lost revenue would have to be replaced.

The Congressional Research Service estimates 15.8 percent of employer-sponsored single plans and 8.2 percent of nonsingle plans in Massachusetts would be subject to the tax in 2018 — among the highest rates in the nation, according to an August analysis.

The Pioneer Institute expects the impact to be even greater. The Boston think tank estimates that about half of Massachusetts workers with private insurance will be affected because of the state’s high insurance costs, especially for teachers, police, and other public workers with robust health benefits.

Nationally, the Obama administration said, 4 percent of workers with employer-sponsored health insurance — just under 6.5 million people — would be affected by the tax in 2018, even if companies do nothing to scale back their plans.

“It’s called a Cadillac tax but it’s really a Buick tax. It affects a significant amount of firms,” said Drew Altman, chief executive of the nonpartisan Kaiser Family Foundation. “It’s easy to dismiss this as Secretary Clinton throwing a bone to labor groups, but it’s wrong to frame it as a debate between good policy and a sellout to easy politics.”


The tax, Altman said, would hit low-income workers and the chronically ill the hardest because it encourages companies to increase deductibles and copays, which are already rising rapidly. Furthermore, predictions by economists that reducing generous insurance packages will lead to higher wages are unlikely to happen immediately and may not be distributed equally among workers, he said.

A group of 101 leading health economists and policy analysts this month sent a letter to Congress urging members not to weaken or delay the tax — support that the White House has highlighted.

David Cutler, a Harvard economist who advised Obama’s campaign on health policy in 2008, said the tax is the best option on the table to make employers and workers see more of the cost of health care so they have an incentive to push for lower prices.

“I think the political world misses that,” Cutler said. “It’s easy to see why people hate it. But if medical care is cheaper and higher quality, people will be very happy.”

Tracy Jan can be reached at tracy.jan@globe.com. Follow her on Twitter @TracyJan.