Mercer Makes a Case for the Tax Exclusion 

Be careful what you wish for. Mercer has long been a member of the Alliance to Fight the 40, a group dedicated to convincing Congress to repeal the 40% excise tax on high-cost plans. Now, while the excise tax is likely to be thrown out along with many other parts of the Affordable Care Act, GOP lawmakers are contemplating capping employees’ tax exclusion for employer-sponsored health plan premiums – and many of the threshold numbers being bandied about are more onerous than the excise tax thresholds.  Unlike the excise tax, which would be paid by employers or health plans, a cap on the exclusion would mean employees would pay income and payroll tax on the value of their health coverage that exceeds the threshold amount.

The Alliance to Fight the 40 arranged a “Hill Day” earlier last week – non-stop brief meetings with influential policymakers. Mercer’s healthcare reform leader Tracy Watts had drawn on various resources to assemble compelling data to support protecting the tax-favored status of employer coverage – the source of health insurance for 177 million Americans – and dispatched two of the contributors, Moshe Radinsky and myself, to make the case on Hill Day while she toured mid-western states briefing clients.

Shepherded expertly around the Hill (note to self: leave the heels home next time) by Washington Resource Group veteran Geoff Manville and Alliance colleagues, we attended six meetings with key staffers. Many of these folks seemed to be working around the clock to sketch out the long-awaited ACA replacement plan, which could wait no longer. There was a palpable sense that we were in the right place at the right time – staffers had a “need to know” and the meetings were brief but intense. Our message, in four bullets:

• Benefit richness is only one factor driving cost.  A cost-based tax penalizes employers with older workers, more women, in high-cost health markets.
• Capping the tax exclusion at the levels being considered will affect more employers than the excise tax.
• Indexing the cap at CPI when health cost rises at several times CPI guarantees that eventually all employees will be taxed.
• Low-income families will see the biggest increase in effective tax rate under a cap.

The first look at a replacement plan was rolled out last week – by some of the groups we met with – and it did not include a cap.  Insiders say it’s still to come. Meanwhile, we’re planning another trip.