- The House overwhelmingly voted July 17 to repeal the excise tax on high cost health plans (a.k.a. the Cadillac tax) without offsetting the lost-tax revenue.
- Experts project that by the 2030s repealing the tax would cost $1 trillion while the CBO estimated it would reduce federal revenue by $193 billion.
- Repealing the Cadillac tax could further slow the transition to risk-based alternative payment models in the commercial sector.
On July 17, the House overwhelmingly voted to repeal the excise tax on high cost health plans (a.k.a. the Cadillac tax) without offsetting the lost-tax revenue.
Repealing the tax, according to Congressional Budget Office estimates, as reported in Congressional Quarterly, will reduce federal revenues by $193 billion. However, experts project that by the 2030s repealing the tax would cost $1 trillion (half the effects from the tax itself, the other half from individual wages/income tax impacts) as almost half of employees’ health plans would be subject to it. For full impacts of repealing the Cadillac Tax, review the July 13 blog by the Committee for a Responsible Federal Budget.
Although there is a companion bill in the Senate that has bi-partisan support, whether it comes to the floor for a vote is uncertain at this time.
Caddie tax background
The Caddie tax taxes the amount of health insurance premiums over a certain threshold at 40% —$11,200 for individuals and $30,100 for families in 2022. The dollar threshold for the tax is indexed to general inflation, not healthcare cost growth.
Over time, more employees’ health plans (or a greater part of the premium for those plans) would be subject to the tax in the absence of employer action to constrain premium growth.
Many economists, regardless of political affiliation, support the tax as it corrects the incentive for employees to receive more compensation through tax exempt healthcare premiums. And many economists believed the tax is an effective tool for constraining premium growth (a.k.a. growth in the total cost of healthcare) in the private sector.
As evidence, avoiding the Caddie tax was frequently cited by employers as one of the reasons for increasing employee deductibles and cost sharing, which reduced premiums.
Most employers have realized they’ve reached the limit of what they can shift to employees at the point of service.
If the Cadillac tax remains in effect and actually kicks in, I would expect employers over time to respond by narrowing provider networks. If employers leaned heavily on exclusive provider networks or well-defined clinically integrated networks, this could accelerate the transition to alternative payment models, particularly if employers are willing to negotiate multi-year contracts based on managing the total cost of care.
If the Caddie tax is ultimately repealed, I would view it as a missed opportunity to accelerate the transition to value.