Don’t Repeal the “Cadillac Tax” On High Cost Health Plans

Since the beginnings of employer-sponsored health insurance (ESI), employer contributions have been excluded from both income and payroll taxes, without limit (“the exclusion”). The Affordable Care Act’s (ACA) so-called “Cadillac Tax”—a nickname chosen to suggest luxury and extravagance—is a 40 percent excise tax on the insurer on the excess of aggregate cost of coverage over $10,200 per individual and $27,500 per family in 2018. The Cadillac Tax was intended to help correct some of the perverse incentives created by the exclusion, as well as to help pay for subsidies for health insurance purchases. Some employers and unions are now lobbying for its repeal. Costs Of The ESI Tax Exclusion In 2015, the exclusion will cost the federal budget $250 billion. The exclusion has created powerful incentives to drive up health care costs; it has led to over-insurance as employees and employers take maximum advantage of an available tax break. Beyond insurance for high-cost, unpredictable expenses, employers have included coverage for routine care, dental care, eye care including prescription glasses, podiatry, hearing aids, and more. Deductibles, copayments, and coinsurance rates have been reduced as employers sought to include as much as possible in tax-favored premiums and flexible spending accounts. Because of the exclusion, an additional dollar of benefits costs, for many, roughly 60 cents, net of income and payroll taxes. Tax-free ESI has been the subject of m...
Source: Health Affairs Blog - Category: Health Management Authors: Tags: Costs and Spending Following the ACA Insurance and Coverage Payment Policy Alain Enthoven Cadillac tax Employer-Sponsored Insurance Health Policy premiums Source Type: blogs