Wednesday, May 18, 2016

'Cadillac tax' on health benefits will hit middle class hardest: Study

Public Release: 11-Mar-2016
'Cadillac tax' on health benefits will hit middle class hardest: Study
Affordable Care Act's provision to tax employment-based health benefits will disproportionately harm families with incomes between $38,550 and $100,000, while sparing the wealthy
Physicians for a National Health Program

Although both liberal and conservative economists have denounced the longstanding exemption of employment-based health benefits from taxes as tantamount to a "regressive" tax subsidy that unfairly favors the rich, and have lauded a provision of Affordable Care Act that will impose a hefty tax on costlier ("Cadillac") benefit packages, those who stand to be hit hardest by the new provision are middle-income families.


"Taxpayers should be paying directly for health care through Medicare-for-All, not indirectly through tax subsidies to private insurance. However, removing the tax subsidies - as Obamacare will do - without setting Medicare-for-All in place is a step backwards. It's shameful that economists have provided cover for this tax that will hit middle-class families and largely spare the wealthy," said Woolhandler.


As to the claim that new levy will make the tax subsidy less "regressive," the authors flatly deny it. They say that while it's true that the wealthiest segment of the U.S. population, e.g. the richest fifth, is currently receiving the largest subsidies in terms of absolute dollars (hence the claim that the subsidies are regressive), if one uses the standard economic definition of regressivity - based on share of income - it's clear that middle-income Americans stand to sustain the greatest financial harm.

"The tax subsidy is a big help for people with (2009) family incomes of $38,550 to $100,000, but not for those with lower or higher incomes," they write. As a result, the new tax on benefits "will hit the middle class hardest and spare the wealthy."

They add that eliminating the subsidies (and "over-insurance"), as the Cadillac tax aims to do, "has ripple effects that will disproportionately harm lower-income workers."

"Employers seeking to avoid the tax will probably increase copayments and deductibles. Even if most of the employers' premium savings were eventually passed on to workers as higher wages, the higher out-of-pocket costs would discourage most low-income families from seeking care - exacerbating inequalities in health and health care."

The authors also criticize other inequities that are built in to the Cadillac tax provision, and note "the glaring unfairness of levying the Cadillac tax based on the cost of benefits, rather than their richness."


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