Repeal the Excise Tax on Employer-Provided Health-Care Benefits
Beginning in 2020, a 40 percent excise tax on the cost of employer-sponsored health care that exceeds certain amounts—generally $10,200 for individual coverage and $27,500 for family coverage—will go into effect. This provision has been erroneously referred to as a “Cadillac tax,” implying that the policy would touch only high-end and overly generous health-care plans. In reality, however, this tax will hit the approximately 150 million families who obtain health insurance through their employer.
A common misconception regarding the excise tax is that repealing the tax is a favor for special-interest groups like labor unions. Labor unions represent approximately 14 million people, and the number of people who receive health-care benefits from their employer is more than 150 million. The facts simply don’t support such claims. Labor unions and employers support the repeal of the excise tax.
Although the tax does not go into effect until 2020, employees and employers continue to grapple with its consequences. Uncertainty over how the tax will be implemented, as well as inadequate adjustments for inflation, age, gender, and other factors, are leading employers to consider a range of options to avoid the tax by eliminating FSAs and HSAs; increasing deductibles, copays, coinsurance, and out-of-pocket limits; or eliminating employer-provided coverage entirely.
A 2014 Aon Hewitt survey indicated that 40 percent of employers expect at least one of their health-care plans to be affected by the tax in 2020, and 33 percent are increasing employees’ out-of-pocket costs now to avoid the tax. Separately, a 2014 survey produced by Towers Watson confirms 62 percent of large employers are planning substantial changes in their health-care coverage as a result of the tax.
The scope of this tax extends well beyond the so-called “high cost” plans originally targeted when the policy was adopted. In reality, this tax will have an indiscriminate impact on a broad range of individuals and families, especially those with moderate health-care plans who live in higher-cost areas. A 2015 Milliman study reported that nearly 70 percent of the variance in health insurance premiums is explained by geographic location, while just 6 percent of the variance is due to the comprehensiveness of the benefits. Since the excise tax is determined solely by premium cost—not the quality or “richness” of a plan’s benefits—it will unfairly impact older workers, women, and people who live in areas where health-care costs are high, a reality for many airline pilots.
Congress should expeditiously pass legislation to repeal the excise tax on employer-provided health-care benefits. ALPA supports H.R. 2050, the bipartisan Middle Class Health Benefits Tax Repeal Act; H.R. 879, the Ax the Tax on Middle Class Americans’ Health Plans Act; S. 2045, the Middle Class Health Benefits Tax Repeal Act of 2015; and S. 2075, American Worker Health Care Tax Relief Act of 2015.