Skip to Content

Letter to President Obama on Health Care

October 06, 2009

Dear President Obama:

The National Education Association (NEA) and its 3.2 million members remain committed to securing health insurance reform that leads to quality, affordable health care for all.  NEA agrees wholeheartedly with the three overarching goals you highlighted in your September 9 address to the joint session of Congress: ensuring stability and security for those who currently have health insurance; providing insurance to those without it; and lowering health care costs for families, businesses, and government.  These goals provide clear and concise principles by which the ultimate success of reform should be judged.

In this context of strong support for the administration’s overall approach to health care reform, NEA raises deep concerns about the proposal to impose an excise tax on health insurance companies, administrators, and self-insured employers that offer and administer high-cost health plans.  We have been working with our 50 state and 14,000 local affiliates to review the potential impact of this tax on our members’ health care plans.  Our findings have been as sobering as they have been disturbing.

  • For school employees, their health plans, and their employers, whether large or small, the excise tax would be devastating.  The bottom line is that education employees will be pushed to pay the tax in the form of wage cuts, higher premiums, increased out-of-pocket costs, and lower benefits.
  • In Maine, for example, we estimate that with the excise tax structured as it is in the Senate Finance Committee plan (thresholds of $8,000 for single coverage and $21,000 for family coverage), 22,000 of the public education employees receiving health benefits through the Maine Education Association Benefits Trust would generate taxes of $137 million in present value terms between 2013 and 2022.  This is true even with optimistic assumptions for the future direction of annual premium costs (5.5 percent) and a reasonable assumption for the Consumer Price Index (2 percent).
  • Using similar assumptions, nearly 100,000 participants in the state of New Jersey School Employees’ Health Benefits Program would generate taxes in the neighborhood of $385 million, and close to 9,000 participants in the State of Vermont’s Vermont
    Health Partnership plan for public education employees would generate taxes in the neighborhood of $49 million.
  • On the school district level, we see problems similar to those in very large plans.  For example, over the 2013-2022 period, the Rosemount-Apple Valley-Eagan School District in Minnesota would generate taxes of $23 million for 2,100 of its employees, and the West Contra Costa Unified School District in California would have a tax bill of $15 million for 1,200 of its workers.  Other plans in other states provide similarly sobering results.

Raising the thresholds would alleviate very little of the financial pressure.  By increasing the thresholds to $8,900 and $23,000, the liabilities become $62 million (MEA Benefits Trust, Maine); $156 million (SEHBP, New Jersey); $17 million (Vermont); $11 million (Rosemount-Apple Valley-Eagan, Minnesota); and $9 million (West Contra Costa, California).  With thresholds of $9,800 and $25,000: $16 million (MEA Benefits Trust, Maine); $23 million (SEHBP, New Jersey); $1.5 million (Vermont); $4.5 million (the Minnesota school district); and $4 million (the California school district).  School districts and state and local governments have already been hit hard by financial crises, and the need to come up with excise tax money would severely strain their budgets.

The health care plans of hardworking public education employees are not luxuries stuffed with unnecessary medical benefits, as proponents of the excise tax would have the public believe.  They are precisely the kind of good, comprehensive health benefit plans that health insurance reform is supposed to be encouraging.  We have no doubt that this tax would quickly have the devastating effect of causing instability and insecurity in the group health care market, and would threaten the existence of retiree health care benefits around the country.  In everything but name, this is a tax on the workers.

We are also concerned about the way this tax has been promoted.  Although its supporters have called it a tax on “Cadillac” health care plans, the details of the initiative show that it is not really about luxury health care plans.  The tax is based on the cost of a health plan regardless of what it covers or why it costs a lot.  The tax makes no distinction, for example, for plans that cost more because (like many public education plans) they cover predominantly older workers and women.  In addition, other than during an insufficient and narrowly defined three-year transition period, the tax allows for no regional, state, or local adjustments for variations in health care costs.  The tax also applies regardless of how much people pay for their own insurance—even if they paid 100 percent of the premium.

There are undoubtedly luxurious health care plans out there for high-paid executives, and they would certainly be taxed under this proposal.  But the very definition of what constitutes health insurance under the tax highlights the fact that this is not really about “Cadillac” plans.  Under the proposal, the total value of an employee’s health insurance premiums would comprise more than just insurance premiums.  It would include, for example, an employee’s contributions to a health care Flexible Spending Account (FSA).  FSAs are a payment vehicle, not a health care cost on their own, and some employees use FSAs to pay out-of-pocket medical costs precisely because their health insurance is not good enough.

It is clear to the National Education Association why proponents of this tax believe it will bend the health care cost curve: Health care benefits will be severely restricted.  NEA will continue to support meaningful health care reform because we know that it matters profoundly for this country and for the goal of achieving quality public schools for all students.  The excise tax, however, undermines the reform effort and must be taken off the table. 

We encourage the White House and Senate to reject the excise tax and, instead, support the funding options contained in the House proposal (H.R. 3200).

Thank you for your consideration of our views on this most critical matter.


Dennis Van Roekel