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Health plan excise tax based on unrealistic, harmful theory

NEA warns that working families will be the real losers if certain health plans are taxed

WASHINGTON - December 15, 2009 -

The National Education Association (NEA) today said the assumption that health benefit cuts would lead to large salary increases for American workers is naïve at best and disingenuous at worst. Responding to a report from the president’s Council of Economic Advisers saying that “reform will reduce premiums, lower public and private health care spending, and increase workers’ wages,” the 3.2 million-member NEA reiterated its strong opposition to the proposed excise tax on health benefits. 

“It’s very misleading to suggest that health insurance premiums are high because of generous benefits, and even worse to assume that the taxation of high-cost benefit plans will lead to higher salaries,” said NEA President Dennis Van Roekel. “Working Americans will be the real losers, because, economic theory aside, employers will be no more willing to grant large salary increases than they are today.” Van Roekel did agree, however, that the excise tax would lead to widespread health benefit cuts. “These are exactly the type of good health plans that reform should be promoting,” he added.

Van Roekel said there is solid research demonstrating that premium costs are driven by multiple factors, including such variables as gender and location.  Unfortunately, the proponents of the excise tax wrongly equate high premium costs with over-rich benefits, the NEA’s president noted. He cited a recent report published in Health Affairs, indicating that the excise tax fails to appropriately address the real drivers of health care costs.  According to the Health Affairs analysis, “other factors—notably industry sector and the costs of delivering care in the region—are more likely to explain the higher costs of some health plans.”  The study found “only 3.7 percent of variation in the cost of family coverage can be explained by benefit design.”  

“In reality, premium costs are driven by many factors, including the degree of competition in the health care marketplace, the underlying costs of the health services purchased, the size and demographics of the insured group, how and to what degree benefits are used, and state mandates,” Van Roekel said.  “Holding middle class workers hostage to a tax based on premium costs, driven by factors outside the control of plan sponsors and members, is just bad policy.”

“NEA is a strong advocate of health care reform,” Van Roekel said.  “But we cannot support a plan that is paid for at the expense of hard working Americans who can least afford it. We remain committed to real reform that builds on and strengthens our existing employer-based system and we remain opposed to an excise tax that jeopardizes the middle class and asks nothing of the wealthiest Americans.”

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The National Education Association is the nation’s largest professional organization, representing 3.2 million elementary and secondary teachers, higher education faculty, education support professionals, school administrators, retired educators and students preparing to become teachers.

CONTACT:(202) 822-7823,