Unions, insurers team up to fight coming Obamacare tax

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BY SEAN HIGGINS

A coalition of labor unions and health insurance companies is pushing Congress to repeal Obamacare’s “Cadillac tax,” arguing that it will hurt workers by causing their employers to cut back, or eliminate, insurance coverage.

But many economists and analysts argue that whatever the workers lose in coverage they will largely make up in additional wages or benefits.

“The economic evidence is strong that there is a tradeoff between health benefits and wages, so I would expect wages on average to rise as firms cut back on health benefits as a result of the Cadillac plan tax. The wage effect could vary by employee and employer, though, depending on labor market conditions. Workers whose skills are in greater demand will be more likely to get wage increases,” said Larry Levitt, senior vice president for special initiatives at the Kaiser Family Foundation.

The Affordable Care Act, or Obamacare, includes a 40 percent tax onemployer-provided plans with supposedly lavish benefits, i.e., “Cadillac” plans. The White House’s intention was to use the tax revenue from the wealthier plans — estimated by the Congressional Budget Office at $87 billion over 10 years — to finance other parts of the law. However, many of the plans were negotiated by labor unions and are a key benefit for members. They fear the tax will cause employers to drop or scale back the plans rather than pay the tax.

It is a dilemma that more employers will have to deal with. On Monday, Kaiser released a study that found that 26 percent of employer-provided plans could be subject to the tax when it starts in 2018. The share would rise to 30 percent by 2023 and to 42 percent by 2028.

Organized labor, which fought hard to pass Obamacare, has been worried about the tax’s impact for years. At its 2013 convention, the AFL-CIO labor federation passed a resolution criticizing the law and demanding major changes.

Several top unions such as Unite Here, the United Brotherhood of Carpenters and Joiners, and the Laborers International Union of North America have joined a coalition group called “Alliance to Fight the 40” that also includes major health insurance companies such as Blue Cross Blue Shield Association, Cigna and New York Life Insurance Co.

The group sent a letter to all House lawmakers Monday urging them to repeal the tax. The letter disputes the argument that the tax will bring in $87 billion and argues that many employers will drop coverage or restructure it to avoid paying the tax. Those who don’t drop coverage will require employees to contribute more to offset the higher cost.

Those workers won’t get much in return, the alliance argued. “[I]t is economic theory, not hard evidence, supporting the claim that employers will make up lowered health benefits with higher wages,” the letter stated.

One of the coalition members pointed the Washington Examiner to a 2014 study the American Health Policy Institute, a think tank whose board of governors consists of “60 chief human resources officers from America’s largest employers.” It cited a survey of employers that found that 30 percent would eliminate high-cost plans and 42 percent would require more worker cost-sharing.

“The more likely outcome is that workers do not get any compensating wage benefit,” said Tevi Troy, president of the institute and a former deputy secretary of the Health and Human Services Department under President Bush.

The coalition also pointed to a October study by Aon Hewitt, a company that consults on human resources issues, that found that a third of businesses would “reduce the richness” of their company-provided plans and another 10 percent said they would eliminate the high-cost options.

However, the non-partisan Congressional Budget Office said in a March report that business groups’ efforts to avoid the “Cadillac tax” would likely result in “a larger share of employees’ compensation over the coming decade … [being] paid in the form of taxable wages and salaries.” It even said the increase in taxable wages was the “largest factor” in why it reduced its projection for the federal budget deficit over the next decade by $431 billion.

It stands to reason that employees would get back most of the money in some form, said David Hogberg, author of Medicare’s Victims, a newly published study on the impact of federal health care policies. He noted that employers would not be reducing health coverage because their profits are down, but to avoid new taxes. In other words, companies would still have the same amount of money budgeted for their employees as before.

“Reducing health benefits to avoid a tax … should have no impact on an employer’s revenue stream. Thus, will the employer replace those benefits with wages or maybe some other benefit like 401(k) matching funds? My guess is yes, since if he doesn’t, he risks losing his more productive employees to an employer who is willing to do that,” said Hogberg, who is also a policy analyst for the National Center for Public Policy Research.

John Goodman, president of the President of the Texas-based Goodman Institute for Public Policy Research, agreed. “The CBO guess is not a bad one. This is an easy tax to avoid (spend marginal dollars on some other benefit or on wages) and at least 3/4ths of the employers will do just that,” he said, adding, “It’s not even controversial.”

Kaiser’s Levitt said that exactly how much would flow back to the workers wasn’t clear, though. “We don’t have any independent estimates of how much of the savings from any curtailment in health benefits would be passed back to employees in the form of higher wages,” he said.

CBO warns debt becoming unsustainable…

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CBO report forecasts unsustainable debt in long term

BY STEPHEN DINAN

The economy is sluggish but growing and inflation remains low, painting a decidedly mixed picture for the federal government, the Congressional Budget Office reported Tuesday, saying the fiscal situation is improving this year but will snap back by 2018 to swelling deficits and unsustainable debt.

The inflation rate is so low that Social Security beneficiaries probably won’t get a cost-of-living raise after this year, the CBO said. But tax revenue is up and spending has stayed pat, which is helping reduce the pool of red ink in the federal budget.

Combined, those numbers mean the government will run a deficit of $426 billion in fiscal year 2015, down about $60 billion from 2014 and marking the smallest deficit of President Obama’s tenure.


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The good news will continue for a couple of years as the economy belatedly but fully rebounds from the recession of December 2007 to June 2009. By 2018, though, debt will rise as government spending grows and the economy will cool again, the CBO said.

“The growth in debt is not sustainable,”CBO Director Keith Hall said in presenting the estimates. “At some point, it’s going to get to a very high level. Obviously, you can’t predict tipping points, but at some point this becomes a problem.”

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Democrats saw the short-term outlook as progress and said it’s time to close tax breaks and bring in more revenue for spending on investments such as infrastructure.


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Republicans kept their focus on the longer-term warnings in the CBOreport. They noted that taxes will remain higher than their historic average over the past five decades but deficits will persist because spending will still outpace revenue.

Budget watchdogs pleaded with all sides to go beyond the numbers and talk about solutions to persistent debt.

“I don’t know how anyone can declare victory when trillion-dollar deficits are just on the horizon,” said Judd Gregg, a former senator and a co-chairman of the advocacy group Fix the Debt. “While deficits are down this year, the real story is that they are on the rise and that our national debt is at record-high levels and growing.”

Watchdogs pleaded with presidential candidates to start talking about the national debt in their campaigns.

For the most part, that conversation has been muted. Democrats have called for tax hikes to pay for more spending, and Republicans generally have focused on other issues.

New Jersey Gov. Chris Christie, however, has sparred with former Arkansas Gov. Mike Huckabee, a fellow Republican presidential candidate, over the fate of Social Security. Mr. Christie argues that the program needs benefit adjustments to survive.

The CBO report said Social Security spending will be slightly lower than analysts projected five months ago because fewer people will qualify for disability payments. Still, the $66-billion-a-month payout this year makes Social Security the largest single federal program, which is projected to represent 5.7 percent of gross domestic product in 2025.

Medicare and Medicaid, the government’s health care programs for the elderly and the poor, also are growing quickly and are projected to reach a combined 6.2 percent of GDP within a decade.

Defense and other basic domestic spending, however, continue to dip as a percentage of government spending and the economy, reaching levels not seen in decades.

Democrats say cuts to domestic discretionary programs such as education and infrastructure have gone deep enough and that it’s time to reverse them, and they reject Republican calls for limits on growth in entitlement spending.

The CBO said the economy is recovering, though more slowly than predicted. The GDP, the report said, will grow 2 percent this year and rise to 3.1 percent next year before slowing again.

Mr. Hall said recent turmoil in stock markets has not changed those estimates.

“The economic fundamentals, at least so far, haven’t been changed,” he said.

In a more pressing finding, the CBOsaid the government has room to stave off a debt limit breach through November or December — a longer time frame than projected a few months ago. Mr. Hall credited higher tax receipts this year as the reason.

Debt held by the public will dip this year to 73.8 percent, down from 74 percent in fiscal year 2014, and will fluctuate for a few years before beginning a steady climb by 2020 and nearing 77 percent in 2025. Those are levels unseen since 1950, when the country was getting out from under the burden of World War II.