clock menu more-arrow no yes

The coming fight over Obamacare’s Cadillac tax is politicians vs. wonks

(Shutterstock)

The Cadillac tax has found a few allies — 101 of them, to be exact.

Obamacare's tax on expensive health insurance plans has been under fire lately, with Sen. Bernie Sanders and Hillary Clinton joining calls for its repeal. But it's still got one constituency: wonks.

The left-leaning Center for Budget and Policy Priorities on Thursday released a letter signed by 101 economists defending the tax as an important health law policy to control costs.

Some of these economists are important figures in Washington who helped advise Congress and the White House during Obamacare's drafting. This includes David Cutler at Harvard University, Zeke Emanuel at University of Pennsylvania, and MIT's Jonathan Gruber (yes, that Jonathan Gruber), all former Obama administration advisers. More conservative economists, like American Enterprise Institute's Joseph Antos, also signed on.

The letter is short, just four paragraphs, and is a concise summary of the two main reasons economists by and large favor the Cadillac tax as a way to reduce unnecessary care and create more economic equality:

For decades economists and health policy experts of all political persuasions have agreed that the unlimited exclusion of employer-financed health insurance from income and payroll taxes is economically inefficient and regressive. The Affordable Care Act established an excise tax on high-cost health plans (the so-called ‘Cadillac tax’) to address these issues.

The Cadillac tax will help curtail the growth of private health insurance premiums by encouraging employers to limit the costs of plans to the tax-free amount. The excise tax will discourage the provision of insurance that covers such a large proportion of health care spending that consumers have little incentive to insist on cost-effective care and providers have little incentive to provide it. As employers redesign health insurance plans to hold costs within the tax-free amount, cash wages or other fringe benefits will increase. Furthermore, repealing the Cadillac tax would add directly to the federal budget deficit, an estimated $91 billion over the next decade according to the Joint Committee on Taxation.

We, the undersigned health economists and policy analysts, hold widely varying views on other provisions of the Affordable Care Act, and we recognize that measures other than the Cadillac tax could have been used to restrict the open-ended health insurance tax break.

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.

Austin Frakt, an economist at Boston University who signed the letter, says to pay especially close attention to that last paragraph about an "alternative tax change." This is something Clinton has hinted at: Her campaign has said it will find alternative cost savings to offset the cost of repealing the Cadillac tax, but still hasn't put forward what those policies actually look like.

There is a clear divide shaping up around the Cadillac tax, and not one that falls along party lines. It's a fight between policy wonks of all political stripes who think it's a great idea to curb the subsidy for employer-based health insurance, and politicians who know those changes are incredibly unpopular. This letter is unlikely to sway any hearts and minds, but it does show that the tax has at least some defenders at the ready.