Economists favor controversial Cadillac tax

By Annette M. Boyle

Economists of all stripes sent a letter to congressional leaders making a financial case to keep the Cadillac tax. They may be among the few people in Washington--or the country--who favor of the controversial provision, which is set to go into effect in 2018.

The tax requires companies pay a 40 percent tax if their health insurance plans exceed $10,200 for an individual or $27,500 for a family.

Implementing the tax would bring in an estimated $91 billion to federal coffers over a decade and would push companies to offer higher wages or other benefits instead of rich insurance plans that encourage overuse of the healthcare system, notes the letter, signed by 101 economists and released last week.

"The purpose of insurance is to cover costs that pose undue hardships; you need to provide financial protection so that healthcare costs are not ruinous for people and it doesn't obstruct people from getting needed care," Henry Aaron, an economist at the Brookings Institution, told the Washington Post. "But insurance isn't meant to pay every single bill."

From an economic perspective, "the unlimited exclusion of employer-financed health insurance from income and payroll taxes is economically inefficient and regressive," the 101 economists who signed the letter said, and "the Cadillac tax will help curtail the growth of private health insurance premiums by encouraging employers to limit the costs of plans to the tax-free amount."

Politicians who agree on little else have united to fight the Cadillac tax. Democratic presidential candidates Hillary Clinton and Bernie Sanders and Sen. Dean Heller (R-Nev.) have advocated repeal. Business has jumped into the fray with the Alliance to Fight the 40, which includes major employer groups and health insurer Cigna, saying that it will "reduce coverage and benefits to workers across the country."

To learn more:
- read the letter (.pdf)
- here's the Post article

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