Former Secretary of State Henry Kissinger was fond of reminding critics that “America has no permanent friends or enemies, only interests.” Many years ago, I remember Kissinger on a Sunday morning news show paraphrasing himself and applying the same “no friends, only interests” maxim to domestic politics.
Prior to the Iowa caucuses, I interviewed Jessica Waltman of Forward Health Consulting on the ShiftShapers Podcast (Episode 95).
In that interview, Waltman reviewed the health care positions of those vying for president. Waltman explained many benefits professionals might be surprised to learn the only candidate (at the time) not proposing a weakened or repealed tax exclusion for employer-sponsored health insurance (ESI) was Hillary Clinton.
Since then, of course, Clinton has pivoted to the left and is talking about the so-called “public option” of which leads, inexorably, to the Democrats’ expressed goal of a single payer arrangement. But I digress.
Since the end of WWII, the exclusion has proven useful to employers in their quest to attract and retain employees. It has also served as a kind of de facto pooling mechanism for markets. Yet, in an entitlement-bloated, debt-encumbered budget, the amount of money the government “loses” on this tax incentive is proving too tasty a target to ignore. In 2015, the value of the exclusion was estimated at $250 billion.
Some oppose this exclusion on philosophical as well as fiscal grounds. Economist Jonathan Gruber, writing in the National Tax Journal (June 2011) said, “… there are a number of problems associated with the exclusion. In particular, a number of studies document that the ESI exclusion leads to (likely inefficient) increases in plan generosity.” He continues, “The exclusion is also highly regressive as both tax rates and ESI expenditures rise with income.”
These are typical arguments of many Democrats, hence the generalization that Republicans are more favorably disposed toward the current system. That is not true, of course, but it is widely believed — and to quote The Bard, “there’s the rub.”
Over the years, the “ESI as a cash cow” has been embraced by politicians of both the blue and the red variety. In 2008, President Bush’s budget proposed to replace the ESI with a $7,500 deduction (for individuals). In 2010, Sen. Tom Coburn, R-Oklahoma, and Rep. Paul Ryan, R-Wis., introduced The Patient’s Choice Act, which contained many provisions of Ryan’s Roadmap For America’s Future — including the elimination of ESI, and replacing it with a refundable tax credit.
Present-day Washington has codified the so-called “Cadillac Tax” envisioned as a revenue raiser and a drag against concerns that employers offer plans with benefits deemed to be too rich (heaven forbid) as determined by government nannies. And yet on May 11, GOP lawmakers were briefed on “Obamacare replacement.” One item was (wait for it) … a plan to cap the employer tax exclusion.
On April 14, NAHU proffered written testimony to the U.S. House of Representatives Ways and Means Committee on “The Tax Treatment of Health Care,” encouraging support for continuation of the “employer exclusion.” In part, they argued, “Providing coverage through employers or other group arrangements offers controlled entry and exit in the health insurance market, which ensures the spreading of risk, federally-guaranteed consumer protections like portability rights, the ease of group purchasing and enrollment, and the economies of scale of group purchasing power.”
Many benefits advisors agree with NAHU’s assessment that removing or capping this exclusion would result in a climate that could “… compel employers to stop providing health insurance.” Some believe an advanceable, refundable health insurance tax credit would be a better solution. Others disagree.
Regardless of your position on this issue, it would be wise to heed Dr. Kissinger’s admonition and pay keen attention to interests rather than to friends.
Have you followed us on Facebook?