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Letter to the House Ways and Means Committee on the Tax Treatment of Health Care

April 13, 2016

Dear Representative:

On behalf of the three million members of the National Education Association (NEA), and the students they serve, we write to offer our views on how the tax code affects our health care system ahead of Thursday’s hearing before the House Committee on Ways and Means. The tax treatment of employer-sponsored health benefits is the result of deliberate social policy designed to ensure that workers have good health benefits, and it works for millions of people across the country.

Proponents of taxing health benefits would have the public believe that this country’s health care cost problems stem from the fact that workers don’t pay taxes on the cost of their benefits, as if taxing benefits were the panacea for keeping health care costs in check. However, taxing health benefits cannot solve this country’s health care cost problems. Like most Americans, NEA members generally pay thousands of dollars for their insurance premiums, so they already have a financial stake in keeping costs down, and they pay even more in deductibles and other out-of-pocket costs. Proponents of taxing health benefits argue that the tax exclusion helps the wealthy more than the middle class, because the dollar-based value of the exclusion increases with income. For the middle class and lower-income Americans, though, the tax exclusion for employer-sponsored health insurance is very valuable as a percentage of income.

NEA worked tirelessly to ensure passage of the Affordable Care Act, a law that continues to be crucial for students, educators, and so many others. From the beginning, though, NEA has pointed out that the excise tax on high-cost plans is misguided as both health policy and tax policy. Among its serious problems is the way excise tax liabilities can be driven by the underlying cost of health care in higher-cost areas of the country and by the age and gender of health plan enrollees. The actuarial firm Milliman reported in 2014 that, “although the excise tax is often referred to as a tax on overgenerous health benefits, it is likely to be a tax based on factors other than benefit level and beyond the control of health plan members.”

In a new report released in April 2016, Milliman analyzed the degree to which a recent proposed fix to the excise tax would correct these problems. The report found, “In short, the changes to the excise tax proposed with the FY 2017 federal budget do not effectively address the prevalence of geographic cost differences within or between states, and do not attempt to address other variations in cost based on age, gender, industry and other factors that are correlated with the cost of providing health coverage benefits.”

NEA members believe that the only way to protect hardworking Americans from the tax’s unintended consequences, and to strengthen the Affordable Care Act, is to completely eliminate the excise tax on high-cost health coverage. Over the course of their careers, many public education employees have traded salary increases for the long-term security of a comprehensive health plan and have paid their share of their premiums.  For employers to tell hard-working educators now that their benefits will be cut or they will have to pay whatever excise taxes are due would unfairly penalize them. Employers are already pushing to avoid potential tax liabilities by cutting benefits, increasing deductibles, copays, and coinsurance, passing the tax liability to employees, or eliminating plans together. It is deeply troubling that geography-specific health care costs and the age and gender of plan enrollees can be driving these negative changes.  

Last year’s Consolidated Appropriations Act of 2016 included a much appreciated two-year delay of the excise tax provision of the ACA which we believe is a reflection of Congress’s agreement that the excise tax provision is harmful to working families. The next step is fully repealing the excise tax is an important and necessary improvement to the Affordable Care Act, a law we strongly support. NEA stands ready to work with members of the House and this Committee toward that end.

Sincerely,

Mary Kusler
Director of Government Relations