WASHINGTON — In the heat of the legislative fight over the Affordable Care Act, Obama administration officials argued that including a steep tax on high-cost, generous health insurance plans was critical to the law because it would hold down soaring costs while helping to pay for its expanded health benefits.
On Wednesday, that feature, once considered central to Obamacare, was dealt a blow by an unlikely foe: Democrats.
The House voted almost unanimously to repeal the tax, which was intended to prompt employers to rein in such costly plans and force employees to spend more of their own money on their care. It was expected to be a key cost-containment provision in President Barack Obama’s signature health law and one of the main ways it was supposed to pay for itself.
It was not to go into effect until 2022, but the unions never liked it, nor did business groups or Republicans.
So with neither party showing much concern for the government’s rising tide of red ink, the House moved to permanently block the tax from taking effect — and balloon deficits by nearly $ 200 billion over the next decade, according to the nonpartisan Congressional Budget Office. Senator Charles E. Grassley of Iowa, the chairman of the tax-writing Senate Finance Committee, has suggested that the Senate could follow suit.
“We are re-entering an era of trillion-dollar deficits,” said Maya MacGuineas, the president of the Committee for a Responsible Federal Budget, “and Congress is considering yet another massive tax cut. It appears there is no end to this madness. The Cadillac tax is one of the most important tools we have to control health care cost growth in the private sector. Repealing it will drive up health care costs while adding more than $ 1.2 trillion to the debt over the next two decades.”
The tax has been delayed twice. But the overwhelming vote in the House — 419 to 6, with only three Democrats opposed — increased the likelihood that it never does. Indeed, the debate on the House floor was striking, with one Democrat after another denouncing the provision as if Democrats had nothing to do with its creation.
A recent analysis by the Kaiser Family Foundation estimated that the Cadillac tax would affect 21 percent of employers that offer health benefits if it takes effect on schedule, unless employers change their health plans, rising to 37 percent in 2030. In 2022, the health plans costing more than $ 11,200 for an individual worker’s coverage and $ 30,100 for family coverage would activate the tax, according to the analysis.
Since President Trump took office, the health law has sustained repeated blows. Mr. Trump’s 2017 tax cut eliminated the financial penalty for Americans who decline to get health coverage, and a lawsuit backed by the Trump administration is seeking to declare the health law’s requirement that most people have insurance — and possibly the whole law — unconstitutional.
The administration has instituted regulations to undermine the law, for example expanding the sale of “short term” health insurance policies that do not have to cover pre-existing medical conditions or other health benefits deemed “essential” by the law, such as emergency services and prescription drugs. And the White House has cut funding to promote Obamacare sign-ups and for “navigators” who are supposed to help consumers enroll.
In seeking to get rid of the tax, the Democrats appear in one sense to be joining the slow dismantlement — or at least undermining their own argument that the embattled health law will save taxpayers more than it costs them over the long run while holding down health spending broadly.
But that proved to be of less concern than complaints from some of the Democrats’ key supporters, who say the Cadillac tax will hurt middle-class workers. The bill’s sponsor, Representative Joe Courtney of Connecticut, titled it the “Middle Class Health Benefits Tax Repeal Act” and recruited 367 sponsors, including 200 Democrats.
Even some liberal economists, backed by the unions, are urging repeal. The Economic Policy Institute, a liberal research group, argued that health care costs were already decelerating, so the tax was unnecessary both to pay for the health law and to further slow down health cost increases.
“To put it simply, the tax aims to reduce patients’ utilization of health care,” wrote Thea M. Lee, the president of the institute and a former leader of the A.F.L.-C.I.O., and the economist Josh Bivens. “But the glaring problem of U.S. health costs is not excess utilization; instead it is high and rising prices for health care. Smart cost-containment policy should address these prices, not seek to ratchet down how much care patients seek.”
With so many supporters, Mr. Courtney secured a vote on the House’s fast-track calendar, which requires two-thirds of the House to vote for passage, but also allows the bill to bypass rules that would require the cost to be offset by spending cuts or tax increases elsewhere.
Repealing the 40 percent excise tax on generous employer-sponsored health plans would increase projected federal deficits by $ 197 billion through 2029, according to the budget office, and so far there is no plan for replacing the lost revenue. Many health economists, who have generally been the biggest supporters of the tax, still see it as an important way to contain rising health care costs, contending that generous health benefits encourage people to get more medical care than they need.
Paul N. Van de Water, a senior fellow at the Center on Budget and Policy Priorities, a liberal research center, described the tax as “one of the A.C.A.’s most important cost-containment measures” and said that by curbing the growth of health insurance costs, it could have the effect of allowing for more wage increases.
“Unfortunately, a lot of what Congress has been doing in recent years seems to be ignoring the budgetary consequences,” he said. “The general question is, what’s the overall deficit picture? The answer is, it’s not as good as it should be, and we shouldn’t be making it worse.”
But for Democrats, a key constituency is demanding repeal — organized labor. For decades, unions found it easier to bargain for richer benefits than higher wages, producing labor-sponsored health plans that now could face the tax.
On Monday, the A.F.L.-C.I.O., which represents more than 12 million workers, sent a letter to House members saying the tax was “driving employers to hollow out the health care benefits they provide, making medical care less affordable and creating serious access barriers for millions of workers.”
The letter, written by William Samuel, the union’s director of government affairs, warned that workers would face increasing out-of-pocket costs as their employers reduced benefits to avoid being subject to the tax. It also questioned the premise, used in projections of the tax’s budgetary impact, that employers would increase wages after the tax compelled them to reduce benefits.
“Even when workers are represented by union negotiators,” Mr. Samuel wrote, “losses in health care coverage do not result in commensurate higher earnings for workers.”
Senator Martin Heinrich, Democrat of New Mexico, is sponsoring a companion bill in the Senate, which already has 42 co-sponsors, 21 from each party. Heather Meade, a spokeswoman for the Alliance to Fight the 40, a coalition of corporations, unions, local governments and others that formed in 2015 to fight the tax, said its members remained optimistic that the Senate would vote before the end of the year.
“It is probably the most bipartisan stand-alone vote that we have seen in 2019,” she said of the House vote. “So we think that will send a really strong message to the Senate. A bipartisan win that both sides can take home.”
She said the coalition had been making the case that fear of the tax had been driving employers to already make their health plans less generous, and had played a major role in the steady rise in deductibles that workers have faced in recent years.
Critics of the tax have also emphasized that it would not affect just the wealthiest workers with the most gold-plated health plans, a point backed by the analysis by the Kaiser Family Foundation.
“It is likely many such employers would modify their plans to avoid the tax — for example, offering lower-cost plans, raising deductibles or otherwise shifting costs to workers to avoid the threshold,” the authors of the analysis wrote.