When Capitol Hill Republicans and Democrats as well as many employers and labor unions all agree that a law should be repealed you’d think that law soon would be history.  In the case of the unpopular “Cadillac Tax” the outcome is not so clear.

The Affordable Care Act Cadillac Tax, set to take effect in 2018, is a whopping 40% excise tax on the total value of employer-sponsored health plans that exceed a statutory dollar threshold--$10,200 for self-only coverage and $27,500 for coverage other than self-only.  

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Cadillac Tax Recall? Don’t Count On It

Wed Oct 14, 2015

When Capitol Hill Republicans and Democrats as well as many employers and labor unions all agree that a law should be repealed you’d think that law soon would be history.  In the case of the unpopular “Cadillac Tax” the outcome is not so clear.

The Affordable Care Act Cadillac Tax, set to take effect in 2018, is a whopping 40% excise tax on the total value of employer-sponsored health plans that exceed a statutory dollar threshold--$10,200 for self-only coverage and $27,500 for coverage other than self-only.

Counted in a health plan’s total value are not only employer and employee premiums for major medical insurance but also the cost of FSAs, HSAs, HRAs, executive physical plans and wellness programs integrated with medical plans.

Republican lawmakers generally oppose the entire Affordable Care Act and would be happy to dump the Cadillac Tax before it goes into effect. And many Democrats, pressured by their labor union allies, support repeal. Democratic presidential candidate Hillary Clinton has called for repeal.

Meanwhile, the “Alliance to Fight the 40,” a coalition of public and private employers, unions, healthcare companies and associations, have been urging Members of Congress to approve repeal legislation. AFL-CIO president Richard Trumka says the Cadillac Tax is “harmful and unnecessary.”

Arguments against the excise tax are impressive:

  • Employers will avoid the tax by switching to health plans with lower premiums and higher out-of-pocket costs to bring the value of their plans below the triggers. Some argue the tax is already pushing up deductibles as employers redesign benefits in anticipation of the thresholds. This could shift more of the burden of health costs from employers to employees.
  • The tax could have widespread impact. The Kaiser Family Foundation estimates it could affect the health plans of a quarter of employers in 2018 alone.
  • The Cadillac Tax could hit public employees like teachers and first responders hardest because their unions have often bargained for richer tax free health benefits instead of taxable wages. This explains AFL-CIO and teachers unions’ opposition to the tax.
  • The tax could have disparate regional impacts, with high cost urban areas, which tend to have richer health plans, absorbing a disproportionate share of the effect.
  • And, since their cost is counted in totaling up the value of an employer’s health plans, FSAs and HSAs could be the first to go as employers redesign benefits, exposing workers to higher out-of-pocket costs.

Given these powerful arguments, why hasn’t this “Cadillac” been recalled?  Four reasons:

Number One

The architect of the Affordable Care Act, President Obama, opposes repeal. The White House believes the tax will slow health cost growth and make healthcare more “affordable.”

A group of 101 economists recently defended the tax in a letter to Congress, saying it “will help curtail the growth of health insurance premiums by encouraging employers to limit the costs of plans.”

Number TwoRepealing the tax would put a $90 billion hole in the federal budget—the revenue the tax is expected to bring in. Opponents will need to come up with offsetting new taxes to compensate for the lost revenue.

ceridian-number-three.pngThe resignation of House Speaker John Boehner (R-OH) and subsequent leadership dysfunction militates against Congress being able to approve a big piece of legislation like Cadillac Tax repeal.

Number FourRepublicans who wish to repeal big chunks of the Affordable Care Act might decide to keep their powder dry on the Cadillac Tax and include it in a 2017 ACA repeal package.

No one has a crystal ball to predict what Congress will do with any piece of legislation. Sometimes long shots, like the Affordable Care Act itself, become law. Other times consensus legislation, like infrastructure modernization, fail to make it to the president’s desk.

With solid arguments on both sides it’s anyone’s guess whether the Cadillac Tax will be recalled before 2017. I wouldn’t bet on it.