Congressional Bill Would Junk ‘Cadillac’ Tax

Repealing the so-called “Cadillac tax” on high-cost health insurance plans would protect employees from unnecessary benefits cuts, supporters say.

Representative Joe Courtney (D-Connecticut) unveiled legislation from the House Ways and Means Committee to repeal the excise tax on high-cost health insurance plans scheduled to go into effect in 2018.

The policy, sometimes referred to as the “Cadillac tax,” would apply a 40% tax to health insurance expenditures over $10,200 per person and $27,500 per family—it is one of the most controversial provisions of the Patient Protection and Affordable Care Act (ACA).

The excise tax was established in a later version of the act, but the implementation was delayed five years by an effort led by Courtney, with 191 House colleagues, in 2010. Courtney calls it “a poorly designed penalty that will put a dent in the pocketbooks of many families and businesses,” noting that the tax would punish those living in higher-cost areas. In some parts of the country, people may pay as much for a “Ford Focus” plan that does not resemble the higher-cost ones originally targeted when the policy was adopted.

Courtney lauds the ACA for great strides in controlling the growth in health care costs through smart reforms in payment models, emphasizing prevention, cancer screenings and wellness checkups—and emphasizes that reining in that growth was the aim of the excise tax provision.

However, he maintains the excise tax is not smart reform. “It is a flawed, one-size-fits-all penalty that will degrade workers’ benefits, lead employers to choose less-comprehensive plans and force families to pay more out-of-pocket health care costs,” he says.

Studies have indicated the tax would have a disproportionate and rapidly increasing impact on older workers, women and workers in high-cost regions, including the Northeast, who could suffer the most disproportionate increases, according to analyses from economists at the Economic Policy Institute, Towers Watson and Milliman.

For example, according to a press release from Courtney’s office, a recent Milliman study reported that nearly 70% of variance in health insurance premiums is explained by geographic location, while just 6% of variance stems from the comprehensiveness of the benefits. Therefore, since the excise tax is determined solely by premium cost—not the quality or “richness” of a plan’s benefits—it will unfairly impact people who live in areas with higher health care costs.

Next: What’s the impact on businesses?

It’s widely thought that implementing the tax would have an impact on businesses. Four years ahead of the 2018 implementation, employers were already looking for ways to avoid triggering the penalty; a Fidelity benefits executive theorized the first person to write a check for the tax would be making a career-ending move.

Repealing the tax would help counties continue to offer competitive health benefits to employees who serve more than 300 million county residents nationwide, according to Christian Leinbach, commissioner of Berks County, Pennsylvania, and the Northeast regional representative for the National Association of Counties. “Not only would the excise tax hinder our efforts to attract and retain top-notch employees, but it would also have significant impacts on county budgets and impose additional burdens on taxpayers,” Leinbach says.

James A. Klein, president of the American Benefits Council, forecasts that that the tax, if not repealed, could eventually apply to every health plan vehicle on the road, “especially damaging plans with large numbers of women, older workers and families living in areas where health services are expensive.”

“The specter of the excise tax only adds to the difficulty in providing affordable, comprehensive health benefits to employees,” says Joseph F. Brennan, president of the Connecticut Business and Industry Association. “The lack of predictability is particularly vexing for employers as they try to manage their health benefit plans.”

More information about the bill is here.