GFOA Policy Statement on Health-Care Excise Tax Supports Retirement Security

Thursday, October 1, 2015

Solidifying its position in the conversation on national health-care policy, GFOA’s Executive Board unanimously ratified a policy statement on the 40% excise tax on health plan premiums – the so-called Cadillac tax. This issue is vitally important to states and municipalities, which continue to work diligently within sometimes severe budget constraints to provide benefit plans that will help them attract and retain a quality workforce, in competition with private-sector wages and salaries.

In early 2015, the Congressional Budget Office estimated that the Cadillac tax would generate $87 billion in revenue. Of this total, 25% would comprise revenue actually received from the excise tax, while the rest – approximately 75%, or $65 billion – would come from tax revenues on increased taxable wages. In other words, the federal government is assuming that employers will decrease benefits and increase wages simultaneously, an assumption that is further complicated in states that maintain collectively-bargained contracts. In either scenario, direct costs to local governments will rise.

GFOA will work with federal policymakers to advocate for adequate and appropriate funding to ensure the sustainability of the Patient Protection and Affordable Care Act. In so doing, GFOA supports legislative efforts to repeal the 40% excise tax on health plan premiums and also supports alternative approaches that would mitigate the effect of the excise tax on state and local governments, while preserving their authority to design and maintain health insurance arrangements that are tailored to the specific needs of the employers.

“This statement reflects GFOA’s twin goals of working with federal policy makers to bring positive change to the nation’s health-care system while preserving state and local government entities’ flexibility to tailor employee health benefits to their individual circumstances,” said John Tuohy, Deputy Treasurer for Accounting and Treasury Management for Arlington County, Virginia, and chairman of GFOA’s Committee on Retirement and Benefits Administration.

GFOA's public policy positions are developed by the GFOA standing committees and approved by the GFOA Executive Board. Policy statements articulate the position of GFOA and guide local, state, and federal policymakers on the pressing issues of governmental finance.

Send inquires about GFOA policies to GFOA's Washington DC Office (the Federal Liaison Center), or e-mail Emily S. Brock.