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 on employer-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.