Hillary Clinton Joins Growing Chorus Against Obamacare's 'Cadillac Tax'

Opposing the tax means three Democratic presidential candidates candidates are now at odds with President Obama regarding one aspect of his health law.

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Democratic presidential candidate Hillary Clinton speaks at the Democratic National Committee summer meeting on Aug. 28, 2015, in Minneapolis, Minnesota.

Photographer: Adam Bettcher/Getty Images

While Republican presidential candidates debate the best way to repeal and replace Obamacare, Democrats have a different issue to work out: what to do about the law’s excise tax on high-cost employer-based health care plans.

On Tuesday, Hillary Clinton called on Congress to repeal the so-called “Cadillac tax” soon. “Too many Americans are struggling to meet the cost of rising deductibles and drug prices,” Clinton said in a statement. “That’s why, among other steps, I encourage Congress to repeal the so-called Cadillac tax, which applies to some employer-based health plans, and to fully pay for the cost of repeal.” Clinton weighed in after saying last month she was worried the tax “may create an incentive to substantially lower the value of the benefits package” and shift costs to consumers. 

The announcement puts Clinton on the same side of the issue as Senator Bernie Sanders, who co-sponsored a bill that would repeal the tax and issue a “sense of the Senate” resolution that the revenue loss should be funded. Sanders has opposed the tax since 2009, when he proposed an amendment to the Affordable Care Act to remove it from the bill. (Former Maryland Governor Martin O’Malley told an AFL-CIO convention in Nevada last month that he also supports repealing the tax.)

Opposing the tax means that the three Democratic candidates are now at odds with President Barack Obama regarding one aspect of his health care law. Clinton notes in her statement that “we should be defending and strengthening the Affordable Care Act, not scrapping it.” It also forces them to come up with a viable solution to replace the $91 billion in revenue the tax is expected to raise for Obamacare over the next decade. Sanders has supported replacing the revenue with a surtax on the wealthiest Americans, an alternative House Democrats proposed in 2009. In her statement Tuesday, Clinton merely says that her “proposed reforms to our health care system would more than cover the cost of repealing the Cadillac Tax.”

But opposing the tax also helps candidates gain favor with labor unions and, potentially, the voters whose high-cost plans will become less generous as the start of the tax draws nearer. 

Starting in 2018, employer-based health insurance plans will face a 40 percent tax for costs over $10,200 for an individual and $27,500 for a family, with those caps pegged to inflation in future years. 

Supporters of the tax, including the Obama administration, argue that it will also help lower health care spending. But opponents, including labor unions, say that it will hurt the middle- and working-class families it was meant to protect. In fact, the effects are already being felt. 

“As employers look to 2018 they’re starting to make cuts now,” Shaun O’Brien, the assistant policy director for health care and retirement at the AFL-CIO, said in an interview. “Our folks who are negotiating health care benefits are really worried about this.” For unions, who negotiate health care benefits for four- or five-year periods, the tax is already an issue, O’Brien said. 

While unions support more comprehensive plans, proponents of the tax say that beneficiaries of high-cost health plans are shielded from the high costs of health care thanks to the low deductibles and premiums of their plans. If employers offer less generous plans, which the tax encourages them to do, then employees will have to pay more out of pocket. That would lead to less unnecessary health care spending by employees, supporters say, and less health care spending would help keep costs down for everyone. As health economist Austin Frakt wrote at The Incidental Economist in 2010

The expectation is that, at least to some extent, insurers will be motivated to craft policies that avoid the tax, develop innovations to reduce health care costs, and drive harder bargains with providers. This will also likely mean that more health care costs are shifted from premiums to out-of-pocket expenses. That should encourage lower utilization and/or lower prices too.

But, opponents argue the tax will affect too many health plans and question the idea that people should have to pay more out of pocket. 

“At the end of the day this tax is designed to cut the use of health care,” O’Brien said, adding that one of the more “disturbing” aspects of the tax was the idea that people need to have higher deductibles and pay more out of pocket costs. Instead of preventing unnecessary treatments, “what you really end up doing is hurting people with chronic conditions." 

The limits for individuals and families doesn’t account for location or the age of people on the plans. And, because the limits are tied to inflation and not the rate at which health costs rise (which is faster), more plans will qualify for the tax in subsequent years. An August report from the Kaiser Family Foundation estimated that, if insurance premiums rose at 5 percent a year, 26 percent of employers would offer at least one high-cost plan. That number would rise to 42 percent by 2028. The next president will be out of office before 2028, the presidential candidates who want to win over unions will have to come up with solutions soon.

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