Should the Obamacare ‘Cadillac Tax’ on High-Cost, Employer-Sponsored Health Insurance Plans Be Repealed?

by Legislative Vehicle 'Junkyard' | 3.23.20

The bill that originally contained the Middle Class Health Benefits Tax Repeal Act, H.R. 748, is expected to be amended to serve as the legislative vehicle for a "phase three" coronavirus economic relief bill. Additionally, the Middle Class Health Benefits Tax Repeal Act was enacted as part of an omnibus appropriations package in December 2019.

What is House Bill H.R. 748?

This bill — the Middle Class Health Benefits Tax Repeal Act of 2019 — would repeal the “Cadillac tax” which would impose a 40% excise tax on high-cost, employer-sponsored health insurance plans beginning in 2022. The Cadillac tax was enacted under the Affordable Care Act (ACA or Obamacare), and would apply to health plans valued at more than $10,200 for individuals or $27,500 for families when accounting for premium payments made by employers & employees plus contributions to a variety of health savings & spending accounts in that total.

Under current law, health benefits provided by employers are excluded from their taxes, which can incentivize employers to pay a greater share of their employees’ compensation in the form of health benefits rather than in wages. The Cadillac tax essentially creates a cap on this tax exclusion by imposing a tax on high-cost health plans offered by employers. It also is not currently indexed to inflation or healthcare costs, meaning that as health insurance plans get more expensive more people will end up paying the tax.

Argument in favor

The Cadillac tax unfairly punishes businesses for offering their employees with a broad variety of health insurance plans, which is why it has been delayed multiple times by Congress. This bipartisan bill would repeal it once and for all to protect nearly half of American workers from higher premiums and deductibles.

Argument opposed

The Cadillac tax may have bipartisan opposition, but it should be allowed to take effect to bring in much-needed tax revenue. Employers and unions should be discouraged from offering broader health insurance benefits to their employees.Impact

Employees who are enrolled in and employers who offer high-cost health insurance plans; and the federal government.

Cost of House Bill H.R. 748

A CBO cost estimate is unavailable.

More Information

In-Depth: Rep. Joe Courtney (D-CT) introduced this bill to repeal the ACA’s “Cadillac tax” on certain employer sponsored health insurance plans:

“The American people have made it clear that they want Congress to address the rising cost of healthcare. Out of pocket costs are unaffordable for growing numbers of families, even those who insurance. If the 40% excise tax goes into effect, we know this affordability crisis will dramatically worsen. Actuarial experts have repeatedly warned that this tax will disproportionately and unfairly impact older workers, women, and working families in expensive geographic areas. My legislation to repeal the 40% tax has wide and unified support from a range of stakeholders, patient groups, employers, and labor organizations. It’s my belief that the legislation will receive the same broad support in this Congress, and that we will scrap the Cadillac Tax once and for all.”

Original cosponsor Rep. Mike Kelly (R-PA) added:

“By taxing the benefits that employers generously offer their employees to help keep them healthy and financially secure, the Cadillac Tax needlessly cuts into ever-tightening family budgets while making healthcare less accessible. As we know it, the employer-sponsored healthcare system is stable, efficient, and effective in covering more than half of all Americans. Employers are on the cutting edge of innovation, leveraging new technologies and systems to reduce healthcare costs and produce better outcomes. The Cadillac Tax threatens this time-tested system as it would lead many employers to forgo investments in the healthcare solutions of tomorrow. Now is the time to fully and permanently repeal the Cadillac Tax.”

This legislation has the support of 361 bipartisan cosponsors in the House, including 199 Democrats and 162 Republicans. It also has the support of numerous unions and trade organizations.

Of Note: The Cadillac tax was originally slated to take effect in 2018, but a provision delaying it until 2020 was included in an omnibus spending bill enacted in December 2015. It was then delayed until 2022 by a continuing resolution signed in 2018. An analysis done by the Kaiser Family Foundation found that the tax will impact about 42% of American employers and their employees.

This bill is expected to be the second House bill considered in the 116th Congress under the so-called Consensus Calendar, which allows bills to get a vote under suspension of the rules within one week if they’ve attained at least 290 cosponsors.

Media:

• Sponsoring Rep. Joe Courtney (D-CT) Press Release

Summary by Eric Revell

(Photo Credit: iStock.com / LPETTET)