One of the most controversial taxes of the Affordable Care Act (ACA) is in danger of repeal. The tax colloquially known as the “Cadillac Tax” was supposed to take effect in 2018, but Congress has delayed it twice. With the tax now slated to take effect in 2022, opponents of the tax have taken the opportunity to attempt to repeal it for good. On July 17, 2019, the House of Representatives overwhelming voted, 419-6, to approve the Middle Class Health Benefits Tax Repeal Act of 2019, which would abolish the Cadillac Tax. A Senate companion bill with 61 co-sponsors, including 32 Republicans and 28 Democrats, shows that the bill is unlikely to encounter much resistance if it is brought to a vote.
The aptly named Cadillac Tax is a 40% excise tax on the most expensive and comprehensive employer health insurance plans, specifically those plans that cost more than $11,200 for an individual policy or $30,150 for family coverage. The 40% tax only affects the amount of the plan that is over the threshold, and it is not tax deductible. This tax attempts to prevent employers from offering health plans with minimal or no deductibles or out-of-pocket expenses. The rationale behind the tax was to prevent individuals without any financial stake in their healthcare costs from spending aimlessly and excessively on tests and procedures. While intuitively it would seem like the wealthiest individuals would be the most likely to be penalized by this tax, organized labor has been among the tax’s most bitter opposition. Organized labor has argued that instead of preparing to pay this tax, employers have cut health benefits that the unions fought so hard to obtain. In order to stay under the Cadillac Tax threshold, employers have increased premiums, deductibles and other cost sharing mechanisms.
Despite its bipartisan appeal, there is still opposition to the repeal of the Cadillac Tax. A letter to the Senate on July 29 from economists and other health experts argued that the tax “will help curtail the growth of private health insurance premiums by encouraging employers to limit the costs of plans to the tax-free amount.” The letter also pointed out that repealing the tax “would add directly to the federal budget deficit, an estimated $197 billion over the next decade, according to the Joint Committee on Taxation.”
Key Takeaway
Given the popularity of the repeal of the Cadillac Tax on both sides of the political aisle, the tax’s future appears to be in serious jeopardy. Whether the present legislative effort will succeed, however, is an open question and will be something to watch for in the coming weeks and months.