Risk & Compliance

House to Vote for Repeal of ACA’s ‘Cadillac Tax’

Despite strong bipartisan support for a repeal of the onerous excise tax on health benefits, its fate in the Senate remains unclear.
David McCannJuly 17, 2019

The House of Representatives is scheduled to vote late this afternoon on a repeal of the much-reviled “Cadillac tax” provision of the Affordable Care Act.

The repeal is widely expected to pass with ease, reflecting broad bipartisan support for jettisoning the tax, a 40% excise tax on the value of health benefits above defined thresholds. After being delayed twice, the tax is scheduled to take effect in 2022.

[Editor’s note: After press time for this article, the House voted nearly unanimously, 419-6, in favor of the repeal.]

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Broad support for repeal also exists in the Senate, yet the fate of the tax is less clear there, according to Brian Marcotte, CEO of the National Business Group on Health (NBGH), a coalition of approximately 420 large employers.

“Repealing the Cadillac tax is one of the few things in Congress that does have bipartisan support, but the Senate probably won’t vote on it on its own,” Marcotte says. “It’ll likely be attached to something else, like a reconciliation bill, that may not have bipartisan support.”

However, he added that NBGH is hopeful that the Senate will consider repealing the tax this year, as “polls show that the vast majority of Americans oppose taxing health benefits.”

Corporate opposition to the Cadillac tax is rooted in the fact that it’s not, as it was billed in the Affordable Care Act, a tax on “rich” health benefits. That’s because the threshold values of family and individual coverage above which the tax kicks in are indexed to general inflation, rather than medical-cost inflation.

Medical costs have been inflating at a far greater rate than general inflation for many years, and that’s not expected to change in the foreseeable future. Therefore, all companies, not just those with generous health benefits, eventually will be subject to the excise tax — in most cases, sooner than later.

“We asked employers, and by 2022 almost two-thirds of their plans would trigger the tax if it’s not repealed,” says Marcotte. “And you know what? There aren’t any rich plans anymore anyway.”

That’s because employers have been vigilant in doing what they could to delay the date by which they’d be subject to the tax ever since the ACA was passed in 2010. The tax initially was scheduled to take effect in 2018, before Congress delayed it first to 2020 and then to 2022.

For example, in NBGH’s membership survey in advance of the 2018 benefits year, 39% of responding members were planning to offer only high-deductible health plans to their employees in order to hold down the value of the benefits.

However, because of the delays in the tax’s effective date as well as the clear bipartisan support in Congress for its repeal, before the 2019 benefits year only 30% of NBGH members were offering high-deductibles plans (HDHPs) as the only health benefits option.

“Our preliminary data from this year’s survey for 2020 indicates that number will drop further,” Marcotte says.

Of course, there are other reasons for offering HDHPs. They allow employees to practice a degree of consumerism in their health care consumption and to better understand the true costs of health care. But the movement to HDHPs accelerated as 2018 approached and is now abating as the threat of the tax being implemented diminishes.

While the Trump administration has exerted great effort to get Congress to repeal the entire ACA, lobbying efforts to win a repeal the Cadillac tax began well before Donald Trump announced his candidacy in 2015.

According to Marcotte, the federal government’s assumptions underlying the ACA as to the amount of federal tax revenue that the excise tax would generate were unrealistic.

Part of such revenue was expected to be generated by employers raising employees’ wages to compensate workers for offering lower-value health plans.

“For one thing, employers won’t give more in wages if their health care costs keep going up,” Marcotte says. “For another, there are more compelling factors for employers in setting their merit-increase budgets — business performance, the overall economy, and market data showing what other companies are providing in terms of merit increases.”