Administration Proposes a ‘Cadillac Tax’ Tweak

Measure would provide relief in states with higher-than-average health costs

By Stephen Miller, CEBS February 8, 2016

updated on 2/9/2016

The Obama administration’s 2017 federal budget proposal, released on Feb. 9, includes changes to the health care reform law’s so-called Cadillac tax on high-value health plans, administration officials announced in advance. But critics are calling the relief a minor fix that doesn’t address the tax’s major problems.

Legislation enacted at the close of 2015 delayed for two years implementation of the Affordable Care Act’s (ACA’s) 40 percent excise tax on high-value health plans. Under the ACA, plans subject to the Cadillac tax are those with benefits valued above $10,200 for single coverage and $27,500 for family (other than self-only) coverage, indexed annually for inflation. The tax is now slated to take effect in January 2020.

The gist of a forthcoming proposal was described by Jason Furman, chairman of the administration’s Council of Economic Advisers, and Matt Fiedler, the council’s chief economist. In a Feb. 3 post on the New England Journal of Medicine website, they explained how the tax would be adjusted based on the cost of the average gold plan available on the statewide ACA exchange:

The President’s fiscal year 2017 budget proposal would further improve the [Cadillac] tax’s targeting. The most significant provision specifies that in any state where the average premium for “gold” coverage on the state’s individual health insurance marketplace would exceed the Cadillac-tax threshold under current law, the threshold would instead be set at the level of that average gold premium. This policy prevents the tax from creating unintended burdens for firms located in areas where health care is particularly expensive, while ensuring that the policy remains targeted at overly generous plans over the long term if health costs rise faster than the tax thresholds (which will rise with the overall Consumer Price Index).

“This change would assure that the thresholds eventually grow at the same rate as health insurance premiums and the tax wouldn’t affect an ever-rising share of health plans,” commented Paul N. Van de Water, a senior fellow at the Center on Budget and Policy Priorities, a liberal research and policy institute, in a blog post. “The change also would effectively adjust the tax’s thresholds for geographic differences in health care costs.”

Critics Not Appeased

But some business groups opposed to the tax say they will settle for nothing less than its outright repeal.

“We're glad the administration recognizes the Cadillac tax is seriously flawed. But its impact in high-cost areas is just one of its many problems,” James Klein, president of the Washington, D.C.-based American Benefits Council, said in a statement. “It also unfairly hits health plans that cover large numbers of women, older workers and families suffering catastrophic health events. In short, the Cadillac tax cannot be fixed. It must be repealed.”

For employer-provided coverage, the Cadillac tax thresholds include a variety of health care benefits beyond premiums, Klein later elaborated. “Onsite medical clinics, employee assistance programs, wellness programs and employer and employee HRA/HSA/FSA contributions all count toward the Cadillac tax thresholds. The budget proposal would compare the premium-only price of coverage sold in the individual exchanges to the more comprehensive Cadillac tax thresholds, forcing employers to offer skimpier benefits to stay below the new thresholds,” he said.

“The Society for Human Resource Management has long advocated for full repeal of the excise tax,” said Chatrane Birbal, the organization’s senior advisor for government relations.

Congress will examine the administration’s 2017 budget and is likely to make substantial revisions before voting on it. President Barack Obama has indicated he would veto any attempt to repeal the Cadillac tax, and it’s unclear whether he would sign a budget bill that included more substantive revisions to the tax.

Stephen Miller, CEBS, is an online editor/manager for SHRM. Follow me on Twitter.​

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