(Bloomberg) — Republicans are considering capping the U.S.’s tax break on job-provided health insurance, a major change to the tax system that could be used to finance their efforts to repeal and replace Obamacare.
The proposal, still under development, would limit the amount U.S. employers can exclude from workers’ taxes for the health benefits they provide, meaning Americans’ taxes would go up. Excluding premiums from taxes was worth about $250 billion in forgone tax revenue in 2013, according to the Congressional Budget Office. Some health economists have argued that the exemption artificially drives up health spending.
House Republicans plan to put forward a full health-care proposal when lawmakers to Washington at the end of this month, Speaker Paul Ryan said during a press conference after members of his party met in Washington Thursday to talk over their policy options on health care. Such a plan will also likely include broad changes to Medicaid, the state-federal program for the poor. Republicans have promised to repeal Obamacare and replace it with their own policies.
“We need to replace it with a true, patient-centered system, one that gives every American access to quality, affordable coverage,” Ryan said. He has backed similar tax changes in the past.
Economists have in the past described such proposals as equalizing the way health care is treated for those who get it through work, versus those who buy it on their own. Employer-provided health benefits, often worth thousands of dollars a year, aren’t taxed as wages are. People who have to buy coverage on their own don’t enjoy the same tax advantage.
“If you really want to treat American families the same way that businesses do, then this is a way to do it,” Representative Bill Flores, a Republican from Texas, said after the meeting.
The result would be higher taxes on anyone with an employer health plan worth more than the cap Republicans set. Those benefits are now tax-free. A similar idea was proposed by Senator Ron Wyden, a Democrat, during debate over the Affordable Care Act, and went nowhere.
Obamacare already includes a levy on high-cost health insurance plans, known as the Cadillac tax, that begins in 2020. Republicans didn’t say where they would set the cap.
“The Average Joe would not ever see this,” Representative David Schweikert, an Arizona Republican, said after a gathering of House Republicans in Washington on Thursday. “Even the super-Average Joe would not see it.”
The proposal could run into opposition from tax-increase-averse members of the caucus.
"I don’t believe we ought to tax health care. I’ve never been for it," said Rep Pete Sessions of Texas, a senior Republican. "I was opposed to the Obamacare tax, so I’d be opposed to any Cadillac tax. Would I be for a Republican Cadillac tax but against a Democrat Cadillac tax? I don’t think so."
Other GOP lawmakers, including representatives Dan Webster of Florida and Mark Walker, the chairman of the Republican Study Committee, a conservative group of lawmakers, also expressed worries.
“I would say that’s not a breaking point, but it’s a concern,” said Walker.
It’s also likely to gather little help from Democrats.
“This is going to be the ruination of employer-based health insurance,” said Representative Sander Levin of Michigan, a senior Democrat on the House’s tax-writing panel. Combined with tax credits Republicans are looking at, he predicted that employers would stop providing health insurance and push employees to get it on their own.
On the menu
The tax idea is on “a menu of pay-fors” Republicans are considering as they debate changes to the Affordable Care Act and how to fund them, Flores said. Health and Human Services Secretary Tom Price also spoke to Republicans during the meeting, and indicated that the White House won’t propose its own health reform bill, Flores said, despite President Donald Trump pledging to produce a plan shortly after Price became secretary. Price, when he was a congressman, proposed taxing higher-cost employer-sponsored health insurance plans.
“No decision’s been made, we’re really looking at a whole range of options,” House Ways and Means Chairman Kevin Brady, of Texas, said after the GOP meeting. Lamar Alexander, chairman of the Senate health committee, said the House and Senate are working together to come up with a plan that can pass both chambers.
Representative Chris Collins of New York, one of Congress’ earliest backers of President Donald Trump, said that taxing health benefits might discourage companies from providing insurance.
“We want to reward good behavior. And we want to incentivize good behavior,” he said. “Good behavior is an employer providing health insurance. We want to promote that, reward that.”
Conservative and moderate members of the party are at odds about how fast and how far repeal and replace should go. Conservatives want to repeal the law as soon as possible, and many have indicated they don’t want any additions to the bill.
Another major sticking point could be Medicaid. The program was expanded under the Affordable Care Act, bringing coverage to millions of lower-income people. At Thursday’s meeting, Republican leaders discussed giving some states a fixed pot of money, known as a block grant, or a per-person allotment. Such proposals would give states more power to run Medicaid on their own, and are generally opposed by Democrats. Ryan proposed block grants for the program as part of his “Better Way” agenda.
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