Letter to Congress Urging Repeal of Cadillac Tax

Dear Member of Congress:

The Nation’s employers provide stable health care benefits to more than 177 million Americans – the largest source of health coverage in the country. Moreover, surveys show that employees and their families value and rely upon the health benefits their employers offer. We strongly urge you to repeal the 40 percent “Cadillac Tax” on health benefits imposed by the Patient Protection and Affordable Care Act (ACA), and not to take additional action to cap the individual tax exclusion for employer-provided health care benefits, or limit employers’ deductibility of health care expenses.

We would like to thank you for passing legislation to permanently repeal the Cadillac Tax in the reconciliation bill (H.R. 3762) Congress passed in December 2015. We have long argued that the tax would not lower health care costs, and clearly many leaders in the House and Senate agree, given the repeated efforts to both delay and repeal the tax. These efforts were prompted by findings that the Cadillac tax spurred punitive and uneven health plan changes that were detrimental to early-retirees, women, older workers, larger families, and anyone living in higher- cost health delivery areas.

We support efforts aimed at controlling health care costs, but taxing an employers’ deduction or capping an employee’s exclusion will not accomplish that objective. On the contrary, both measures will raise costs for employers and employees.

For more than 30 years, employers have been working on behalf of their employees to rein in health care costs. Employers negotiate with providers and insurers for the lowest pricing that is consistent with the best care. Employers develop and engage in innovative delivery system reforms, lead in the transition to consumer-driven health benefits and wellness programs, and help employees navigate the complex and confusing health care system. These are the types of improvements that lower the actual cost of delivering quality health care.

Increasing taxes on individuals, employers, and/or their health insurance will not reduce the cost of delivering health care. It will, however, constitute a tax increase and drive up out-of-pocket health care costs for employees and their families, risking disruption to the system, and threatening the benefits working families enjoy and want to keep. American voters want lower-cost and high quality health care; they do not want more taxes.

The Congressional Budget Office (CBO) has analyzed the likely results if policymakers impose a limit on the extent to which employer-provided health care benefits could be excluded from income and payroll taxation.1 According to the CBO, this would:

• “Increase the financial burden on some people with substantial health problems;”
  • “[P]robably limit some people’s access to health care and cause them to forgo some care;”
• Reduce “the use of effective care” and “could be accompanied by worse health for some people;”

• [M]ight decrease employers’ willingness to hire older workers or cause employers to reduce other forms of compensation for older workers, such as cash wages or contributions to pension plans;” and
• “[L]ead fewer employers to offer health insurance, thus increasing the number of uninsured workers.”

Taxing health benefits by placing a cap on the individual tax exclusion for employer-sponsored insurance will not help middle class families. 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.