Repeal of Excise Tax on Comprehensive Health Insurance Plans (Cadillac Tax)

VII. Key Issues: Regulation & Reform >> C. Health Reform >> Affordable Care Act (ACA) >>  ACA Repeal >> Repeal of Excise Tax on Comprehensive Health Insurance Plans (Cadillac Tax) (last updated 2.12.17)

Repeal Initiatives 

In 2015, calls for repeal of the Cadillac tax arose from both sides of the political aisle, and from Presidential candidates, businesses, unions, and some insurance carriers. Other modifications were also proposed.

House Bills

Senate Bills

Other Legislative Modifications

  • Legislation Would Shield FSA, HSA Contributions from ACA Excise Tax. “Group health plans would be much less likely to trigger the health care reform law’s so-called Cadillac tax on costly premiums under legislation introduced in the U.S. House of Representatives. The measure, H.R. 4832, introduced last week by Rep. Charles Boustany, R-La., would exclude pretax contributions made to employees’ flexible spending accounts and health savings accounts when calculating whether group health plan premiums exceed the excise tax trigger under the Affordable Care Act. Under the health care reform law, a 40% excise tax is to be imposed on the portion of health care plan premiums that exceed $10,200 for single coverage and $27,500 for family coverage. It is to go into effect in 2020. With the average FSA contribution of $1,500 per participant in 2016, according to Aon Hewitt, excluding those and HSA contributions for excise tax calculations would reduce the likelihood of the tax being triggered. Employer groups welcomed the proposal.” (Business Insurance, 3.28.16)

Budget Impact

  • CBO (October 2015). CBO Scoring (10.20.15) The repeal of the Cadillac tax included in H.R. 3762 (subsequently vetoed on 1.8.16) would have decreased federal budget deficits by about $130 billion over the 2016-2025 period. Specifically, “CBO and JCT estimate that repealing the (Cadillac) tax would result in net budgetary costs to the federal government of $91.1 billion over the 2016-2025 period. That projected increase in federal deficits over the 10-year period consists of a $109.3 billion decrease in revenues, partially offset by an $18.2 billion decrease in direct spending”  (Table 2).
  • Tax Foundation (June 2016). The tax was delayed until 2020, the Tax Foundation estimated 6.6.16 that if the Cadillac Tax were repealed permanently, over the budget window 2016-2025, this would reduce federal revenue by $31 billion, on a static basis, or about $5 billion for each of the six years during which the tax is currently scheduled to be in effect. Repealing the Cadillac Tax would lower the cost of labor, increasing the labor supply and growing GDP by 0.03 percent. After taking these economic changes into account, repeal of the Cadillac Tax would reduce federal revenue by $26 billion over the budget window, on a dynamic basis (p. 117).

Proponents of Repeal

Many economists and health policy analysts prefer a simple cap or limit on the Employer Tax Exclusion on grounds that this would be more efficient and fair. In addition to the groups listed, see other op-eds and opinion pieces by opponents of the tax here.

  • AFL-CIO. ‘Cadillac Tax’ is Bad for Working Families. (Trumka, R. (AFL-CIO), Washington Post, 10.2.15) “This harmful and unnecessary tax is fundamentally flawed. It will hollow out health-care plans and drive up costs because people will not get the care they need until it is too late.” Download 2010 Fact Sheet here.
  • Alliance to Fight the 40. The Alliance to Fight the 40 “is a broad based coalition comprised of public and private sector employer organizations, unions, health care companies, businesses and other stakeholders that support employer-sponsored health coverage. This coverage is the backbone of our health care system and protects over 150 million Americans across the United States. The Alliance seeks to repeal the 40% tax on employee health benefits to ensure that employer-sponsored coverage remains an effective and affordable option for working Americans and their families.”
  • Bipartisan Opposition.
    • Cadillac Tax: A Portion of Obamacare Both Parties Hate. (U. S. News, 8.14.15) “Republicans and Democrats agree on little when it comes to President Barack Obama’s health care law, but one area ripe for bipartisan reform is the Affordable Care Act’s unpopular tax intended to discourage employers from offering expensive health insurance…A survey conducted in March by Mercer, a consulting firm, found that a third of employers will face the tax in 2018, but by 2022, almost 60 percent will face it. The tax affects not just the cost of premiums, but also of health savings accounts and flexible spending accounts…Pauly says research shows shifting costs to wealthier people is beneficial. Rather than look at repeal, he says, Congress may examine how to better target the wealthiest Americans.”
    • Putting the “Affordable” Back Into the Affordable Care Act. (7.2.15) “If Democrats – and historically anti-tax Republicans – want to support a 40% tax on workers and their families, they should look our members in the eye tell people who clean bathrooms, make beds, cook breakfast for school kids and wait tables why they have to choose between a 40% tax or paying higher deductibles and having poorer care.”
  • Democratic Presidential Candidates. Democratic Candidates Criticize Obamacare Tax Disliked By Unions. (Huffington Post, 8.20.15) “Even as they’re defending the Affordable Care Act against Republican attacks, the three major Democratic presidential candidates agreed this week that the health care law does have a problem. It’s no coincidence that unions agree…opponents of the tax say the idea that it will affect only the wealthy is a misconception, since it is expected to hit one-third to one-half of employers in 2018, when it goes into effect, and up to 60 percent by 2022. Opponents also argue that it unfairly punishes older workers and those who live in areas where health care costs more. They say that the tax encourages employers to lower the value of the benefits they offer and thereby shifts more costs to consumers.”
  • FSA/HSA Account Holders. Battle Over ‘Cadillac Tax’ Heats Up (The Hill, 11.2.15) “In a fly-in visit with key members and committee staff, employer benefits lobbyists went in seeking a more politically viable solution than full repeal… Sweetnam’s group is asking lawmakers to allow personal accounts, such as Flexible Spending Accounts (FSAs) and Health Spending Accounts (HSAs), to be excluded from the insurance excise tax. Unless that happens, he warns that those accounts — which allow people to save tax-free — will cease to exist. ‘What we’ve been telling people, if you don’t do something with health savings accounts and FSAs, employers are going to start dropping them,’ he said.”
  • UNITE HERE Union. What Obama’s Economists Get Wrong About the Cadillac Tax.(Huffington Post, 11.20.15) “We fought hard to help elect President Obama on the promise of expanding coverage for the uninsured while keeping the healthcare we have, as the President promised. We now know that promise was false. And every day proves the claims of ACA supporters about other parts of Obamacare equally false… The staunchest defender may be former economic advisor to Vice President Biden Jared Bernstein. In a recent Washington Post column, Bernstein admits that maybe the facts aren’t lining up the way the theory says they should. Yet, he keeps rehearsing these theories to defend the tax, which is now subject to bipartisan repeal efforts. Here are four such misguided theories about the so-called ‘Cadillac’ tax.”
  • U.S. Chamber of Commerce. “The U.S. Chamber of Commerce, usually no friend to unions, also is strongly against the tax.”

Opponents of Repeal

In addition to the groups listed, see other op-eds and opinion pieces by proponents of the tax here.

  • Health Economists. Health Policy Experts’ Statement about Excise Tax on High-Cost Plans. (10.1.15) “A group of 101 prominent health economists and policy analysts have sent Congress the following letter about health reform’s excise tax on high-cost health plans. The letter was spearheaded by a bipartisan group of health care experts — Henry Aaron, Joseph Antos, David Cutler, Peter Diamond, Robert Reischauer, Alice Rivlin, and Gail Wilensky.” Center on Budget and Policy Priorities.
  • Obama Administration. How Obamacare Will Change Employer-Provided Insurance. (11.7.13) “‘If you’re one of the 80 percent of Americans who is insured or covered through an employer plan or through Medicare or Medicaid, or the Veterans’ Administration, there is no change for you except for an increase in benefits that everyone receives as a result of the Affordable Care Act,’ White House spokesman Jay Carney said Tuesday. Yet in the years to come, some workers with employer-provided benefits will see their benefits scaled back because of an Obamacare tax. That portion of the law — known as the ‘Cadillac tax’ — isn’t set to take effect until 2018, but it’s already influencing the benefits packages that employers offer… The administration’s argument for the individual market applies to the employer-based market: No one with health insurance should expect to keep their current plan forever.” CBS News.