AFSCME opposes a tax on health benefits, including an excise tax on health insurance plans:
The proposed Baucus excise tax harms AFSCME members, state & local government employees, and middle class working families. AFSCME opposes a tax on health benefits

A. Summary of Senator Baucus’ proposed excise tax on health insurance plans:
Starting in 2013, the Baucus tax would impose a 40% tax on the value of employer-provided health plans exceeding a threshold of $21,000 for family coverage and $8,000 for individual coverage. The tax applies to the aggregate value of major medical, dental, vision, and other supplemental coverage along with contributions to FSAs, HSAs, and HRAs. Thus, in addition to premium costs, the tax applies to employee pre-tax salary reduction contributions to a Health Flexible Spending Account (FSA) and employer contributions to a Health Savings Account (HSA). Millions of workers use these accounts (AFSCME members mostly use FSAs).
After 2013, the tax thresholds ($8,000/$21,000) are indexed to CPI-U (Consumer Price Index-Urban Consumers), plus one percent.
The thresholds increase $750/$2,000 for specified high risk occupations and retirees aged 55+ years old.
There is a 3 year transition rule for the 17 states least affordable in 2012 (as defined by HHS Secretary). In these states, 2013’s tax threshold increases 20%, 2014’s threshold increases 10%, 2015’s threshold increases 5%. After 2015, the same threshold will apply to all states.

B. AFSCME’s Talking Points in opposition to the Baucus excise tax on high cost health plans:

1. In 2013, the Baucus tax would affect the health insurance of millions of working families, including hundreds of thousands of AFSCME members and state and local government employees.
The Baucus tax starts in 2013 and experts agree it immediately affects millions of working families.
For example, the Congressional Research Service estimates if health insurance premiums increase 5% annually, in 2013 the Baucus tax would affect 9.8% of private sector employees enrolled in their employer’s single coverage and 8.5% enrolled in family coverage – a total of 5.7 million employees1.
AFSCME estimates if health premiums rise 6% annually, in 2013 the Baucus tax would affect the health insurance of a typical state government employee in 18+ states. Local government employees face similar health costs. Many state and local government employees are AFSCME members.


2. After 2013, the Baucus tax hits millions of additional families each year. If CPI-U, plus one percent is used to index the $8,000/$21,000 tax thresholds, thresholds would grow slower than health care costs.
The Baucus tax uses CPI-U (Consumer Price Index-Urban Consumer –All Items), plus one percent to index the $8,000/$21,000 tax thresholds into future years. The historic and projected growth rate of CPI-U, plus one percent is far lower than the growth rate of CPI-U-Medical Care or the costs of health insurance premiums.
Looking backward, the Bureau of Labor Statistics reports from August, 2008-July 2009, CPI-U decreased 2.1%, CPI-U-Medical Care increased 3.2%, and health care premium costs increased by 5%-10%+. Looking forward to the next 10 years, an index of CPI-U, plus one percent is projected to increase an average of 2.9% and health insurance premiums are projected to increase 5.5%, 6%, or higher.
Thus, the projected gap between Baucus’ index and a more appropriate index linked to rising health costs is enormous. Quite simply, if health premium costs continue prior increases, indexing tax thresholds with a slow growth index like CPI-U, plus one percent - will force the Baucus tax onto millions more working families.

3. Insurers and employers will pass along the burden of the Baucus tax directly to insured families. Rather than pay the 40% excise tax, insurers and employers will reduce the value of their health plans below the tax thresholds and they wilwl accomplish this by reducing health benefits to employees.
Insurers and employers will make every effort to avoid the Baucus tax. The simplest and most likely way they will accomplish this is to reduce health benefits, which shifts costs directly to the insured.
1 CRS, State-Level Estimates of Employer-Sponsored Health Insurance Premiums Exceeding Certain Levels, September 15, 2009.
 

The claim that insurers will suddenly start competing for these new health plans at the new lower price point and this will drive down costs for the given benefit level is illogical. By this logic, insurers should already be competing for these health plans at the higher price point. After all, if insurers compete at one price point, they should compete at all price points. Competition is competition and it should not vary by price point or be affected by the Baucus tax’s tax thresholds.
The claim that employers will use their savings from reducing employee health benefits to give it back to employees through wage increases is very unlikely. For example, 50 state governments are suffering a cumulative $350 billion budget gap and implementing draconian service cuts along with employee layoffs, Reductions in Force, mandatory furloughs, hiring freezes, wage freezes, and other reduced benefits. If the Baucus tax encourages state governments to reduce spending on health care benefits, they are extraordinarily unlikely to use the savings to increase wages. Similarly, the private sector’s downsizing and layoffs suggest this is very unlikely. In the context of double digit unemployment rates and multi-year stagnant wages, workers have little leverage to force employers to trade decreased health care expenditures for increased wages.

4. The Baucus tax unfairly targets millions of employees working in certain communities, professions, and workforces that have high health care costs. It discriminates against workers in female dominated professions, older or sicker workforces, high cost locations, and areas where several corporations dominate the health insurance market. It discriminates against workers with comprehensive health benefits, including members of labor unions who collectively bargained for those strong benefits.
Many health insurance plans are costly simply because the plans cover a workforce (insurance pool), which already has relatively significant health problems and is expensive to insure. For example, older, female dominated, and smaller workforces tend to have higher health care costs than younger, male, or larger workforces. Large profitable health insurance corporations often have an oligopoly or outright monopoly on a local insurance market and without competition, insurers can set high non-competitive prices. Some plans are costly because they cover workers in high cost areas. Some plans are costly because they provide comprehensive benefits and sometimes unionized workers requested and collectively bargained for these benefits in place of wage increases. The Baucus tax discriminates against workers in these high health care cost workforces, communities, and union comprehensive plans.
These factors have nothing to do with excessive health benefits or insured patients allegedly overconsuming health care.

5. Health care reform should not be funded by a tax on working families. There are other better progressive revenue options to fund health care reform.
Health care reform should make health care more affordable. A tax on health benefit moves in the opposite direction. AFSCME supports the federal income tax surcharge in H.R. 3200, which 3 House Committees approved. AFSCME supports other progressive options to fund health care reform, including:
Limit federal itemized tax deductions (e.g. President Obama’s or related proposals): 28% cap raises $178.2 billion over 10 years;
Extend Medicare tax to unearned income: raises $160.3 billion over 10 years;
Close corporate tax loopholes (e.g. President Obama’s or related proposals);


6. Voters elected President Obama and many Congressional Democrats in 2008 due in large part to their campaign promises not to tax families earning less than $250,000 and their opposition to a tax on health care benefits. The Baucus tax violates these campaign principles and promises.
The excise tax would violate President Obama’s campaign promise not to tax families earning less than $250,000. In fact, the Baucus tax would hit some families earning annual salaries of $30,000, $40,000, $50,000.
In addition, during 2008 President Obama actively campaigned in opposition to a tax on health care benefits. Then Senator Obama labeled taxing employee health benefits, “the largest middle-class tax increase in history.”
If Congress and Obama approve an excise tax, it will violate Obama’s campaign principles and promises.