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Experts Defend Controversial Obamacare 'Cadillac' Tax

By Melissa Attias, CQ Roll Call

October 1, 2015 -- Opposition to the health care law's so-called Cadillac tax on high-cost employer health plans has grown in recent weeks as Democratic presidential contenders pushed for its repeal, but 101 health economists and policy experts urged tax writers Thursday not to weaken it without enacting an effective alternative.

The group's ranks represent a mix of ideological views, from Joseph Antos of the conservative-leaning American Enterprise Institute to the Brookings Institution's Alice M. Rivlin, who was director of the Office of Management and Budget under President Bill Clinton. The left-leaning Center on Budget and Policy Priorities circulated the letter and sent it to the top Democrats and Republicans on the House Ways and Means and Senate Finance committees.

The letter noted the economists and policy analysts involved hold "widely varying views" on other parts of the controversial health law and that measures other than the Cadillac tax could be used to reign in the tax break for employer-sponsored coverage. "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," the letter said.

In 2018, the threshold for the tax would be $10,200 for self-only coverage and $27,500 for family plans, with a 40 percent tax imposed on amounts over those limits.

Although the tax doesn't take effect until 2018, a growing lobbying force of business groups and labor unions are seeking to eliminate the levy. Nevada Republican Dean Heller and Ohio Democrat Sherrod Brown both introduced Senate repeal bills last month (S 2045, S 2075), following the introduction of House repeal bills from New Hampshire Republican Frank C. Guinta and Connecticut Democrat Joe Courtney earlier this year (HR 879, HR 2050).

Democratic presidential candidate Hillary Rodham Clinton got attention Tuesday when she released a statement encouraging Congress to scrap the tax that was created by Democrats "and to fully pay for the cost of repeal."

Republicans on the House Ways and Means Committee, meanwhile, endorsed its repeal alongside other pieces of the health law Tuesday in their recommendations for the expedited budget reconciliation process, which President Barack Obama is certain to veto.

In their letter, the experts said the health overhaul established the Cadillac tax to address something economists and policy specialists across the political spectrum have agreed on for decades: "that the unlimited exclusion of employer-financed health insurance from income and payroll taxes is economically inefficient and regressive." They maintained that the tax will restrain the growth of premiums for private coverage by encouraging employers to restrict their plans' costs, while discouraging them from providing insurance that covers so much spending "that consumers have little incentive to insist on cost-effective care and providers have little incentive to provide it."

The signers also predicted that employers will boost wages or other benefits as they redesign their health plans to meet the tax's thresholds. In addition, they cited a Joint Committee on Taxation projection that repealing the tax would increase the deficit by $91 billion through fiscal 2025.

In addition to Antos and Rivlin, the letter was spearheaded by well-known economists Henry Aaron, David Cutler, Peter Diamond, Robert Reischauer, and Gail Wilensky. Massachusetts Institute of Technology economist Jonathan Gruber, who advised the administration as the 2010 law was enacted and apologized before a House panel last year for embarrassing Democrats with "glib, thoughtless, and sometimes downright insulting" comments about the overhaul, also signed onto the effort.

Opponents of the tax maintain that the provision will end up hitting a number of plans rather than solely those with overly generous benefits, with the ranks growing each year because it's aligned with the consumer price index but medical inflation is higher. Critics are pushing for quick action on repeal because they say employers are already reducing coverage or shifting costs to workers to avoid the tax.

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