GOP proposal limits tax-break on employer health care plans

Advocates of consumer-directed health care have a new reform plan to embrace as an alternative to the Affordable Care Act, but one piece of the plan is already drawing fire from business interests.

The plan, the latest plank in congressional Republicans’ “A Better Way” roll out, would cap the employee exclusion from taxable income for employer-provided health benefits. This aspect of the plan drew a swift rebuke from the National Retail Federation, which supports other provisions such as repealing the ACA’s employer mandate and changing the law’s definition of 30 hours a week as full time.

However, the NRF states that other pieces, such as adjusting the employee exclusion, need “significant work.”

While Republicans did not specify the point at which premiums would no longer be excluded from taxation, the NRF notes that employees are sensitive to the slightest change in benefits. “For employees, this will amount to a tax on a portion of their benefits, thus reducing their total compensation,” states Neil Trautwein, vice president of health care policy for the NRF, in a prepared statement. “Given that employers are in no position to compensate with higher wages, unhappy employees are a likely result.”

Consumer centric?

House Speaker Paul Ryan announced the plan Wednesday. Republicans say their plan it isn’t a return to the pre-ACA, or Obamacare, status quo, and they claim Obamacare cannot be fixed. Instead, they propose what they call “patient-centered care” that features more choices, not more government mandates.

“You should have the freedom and flexibility to choose the care that’s best for you,” the GOP says in an executive summary. “Insurers should compete for your business and treat you fairly — no matter what.”

Under the plan, people without access to employer coverage, Medicare, or Medicaid would be offered a refundable tax credit to help buy medical insurance in the individual market, where plans are becoming increasingly expensive. The tax credit would move from job to job, and it is age-adjusted and set higher as people get older.

If a consumer chooses a coverage that’s cheaper than the value of the tax credit, the excess can be deposited into a health savings account and used for out-of-pocket health expenses.

For the roughly 155 million Americans who get health care coverage through work, the plan caps what its sponsors call “the open-ended tax break” on employer-based premiums. Republicans characterized the limits on the tax break as a way to increase take-home pay because workers typically accept lower pay in exchange for tax-free benefits.

Another stated justification is the provision will help keep premiums low and it’s superior to Obamacare’s controversial “Cadillac tax,” which critics charge is a tax on workers. Under the ACA, an employer or a health insurer that offers an annual health insurance plan that costs more than $10,200 for an individual or more than $27,500 for a family will pay a 40% excise tax on the amount exceeding either of those cost thresholds. Thresholds would be adjusted based on annual medical inflation. 

Trautwein notes the Cadillac tax, which has been delayed from 2018 to 2020, also sought to drive down health care consumption by reducing employee benefits. “We oppose them both,” he states. “Policy makers should look elsewhere — medical providers, for example — to address rising health care costs.”

Overall, the NRF says retailers agree with the GOP vision for a private, competition-driven health care market, but adds that care must be taken to preserve the foundation of employer-based health benefits. In particular, the federation argues that younger employees might choose to drop coverage rather than pay more taxes in a post-ACA environment without mandatory individual participation.

Kurt Bauer, president and CEO of Wisconsin Manufacturers and Commerce, also likes the plan’s free-market aspects, but says he needs to know more about capping the tax exclusion for employer-sponsored benefits. “Keep in mind that this is designed to be a blueprint, a conversation starter,” Bauer notes. “This isn’t legislation, it’s a white paper. It’s designed to get people talking.”

(Continued)

Quantity vs. quality

The GOP plan would also:

• Allow small businesses and individuals to band together through new pooling mechanisms, which would — in theory — increase their purchasing power.
• Support wellness programs by allowing employers to reward employees for making healthy choices.
• Allow medical insurance plans to be sold across state lines.
• Protect people with pre-existing conditions from being denied coverage regardless of health status.
• Encourage young people to buy and keep insurance, which would help to lower overall costs.
• Empower states to design Medicaid programs that best meet their individual needs.
• Give future Medicare beneficiaries the opportunity to choose from traditional Medicare and competing private plans and help seniors pay premium costs for the plan of their choice.

Touting the plan in a speech before the American Enterprise Institute, Ryan characterized the difference between the ACA and the GOP plan as one of quantity in terms of covering more people versus quality. He says the problem with the ACA is that it expanded coverage by lowering quality and made some people pay more so others could pay less.

“It [the ACA] was a classic top-down, command-and-control, Washington-imposed solution,” Ryan charges. “They treated patients — real, flesh-and-blood human beings — like auto parts on an assembly line, interchangeable and insignificant.”

In contrast, he says the Republican plan gives consumers a choice “rather than forcing them to buy a plan that Washington bureaucrats have mass produced.”

Reaction to the rollout

Much of the reaction to the GOP plan fell along partisan lines. Katie Hill, a White House spokeswoman, told the Wall Street Journal the proposal is a compilation of vague and recycled ideas that take coverage away from millions of people who now have access to medical insurance and increases costs for families and seniors. “We hope that congressional Republicans stop trying to destroy a law that’s helping so many people and instead accept the president’s offer to work together to strengthen the Affordable Care Act in a bipartisan way to further improve Americans’ health care and the economy,” Hill states.

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