Lawmakers Introduce New Legislation to Repeal Health Care Cadillac Tax

Several lawmakers have introduced the Middle Class Health Benefits Tax Repeal Act (H.R. 748) to repeal the Affordable Care Act’s “Cadillac tax.” The legislation, introduced by Rep. Joe Courtney (D-Ct.) and Mike Kelly (R-Pa.), would repeal the 40 percent excise tax that will eventually impact most employer-sponsored health insurance plans.

Passed in 2010, the Cadillac tax was planned to take effect in 2018 and has been delayed twice by Congress due to its unpopularity. Under the law, employers would begin paying the excise tax when the total spending on a health plan, including employer and employee premium contributions, exceeds $10,200 for individuals and $27,500 for a family. However, soon after it was enacted, bi-partisan support to eliminate the Cadillac tax mounted in light of studies showing that it would impact a broader segment of the population than expected.

For example, a study by the International Foundation of Employee Benefit Plans indicated that nearly 60 percent of employers and other health care plan sponsors were expected to trigger the 40 percent tax for individuals and families reaching the dollar threshold. Of those employers, roughly 40 percent would immediately pare down their health plans to avoid the tax and a nearly equal percentage would do so before the 2018 effective date. In addition, a coalition of insurance providers opposed to the tax warned that it could hurt worker retention and cause some to drop their insurance coverage entirely. To avoid the tax, many employers have already raised co-payments and deductibles, as well as reduced choices of doctors and hospitals.

Employers say that one of the intended justifications for the tax — that it will reduce health plan costs — is a myth. For example, they question how an excise tax targeting generous employer-provided health care plans can control soaring prescription drug costs. The Cadillac tax also has a negative impact on labor unions that have traditionally negotiated for generous health benefits at the expense of higher wages.

Clearly, Congress continues to voice strong support for addressing one of the biggest concerns faced by employers that provide health insurance benefits.

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