A decision by Congress to defer a new tax on expensive employer health plans would cost the government an estimated $9 billion and have a potent symbolic effect as the first major change that lawmakers have made to the Affordable Care Act since its passage.
The two-year postponement in what has been dubbed the “Cadillac tax,” because it applies to high-priced insurance, is the most significant of three changes to ACA taxes that are woven into a sprawling budget package on which the House and Senate are preparing to vote within the next few days.
The legislation would suspend temporarily both of the other taxes, which already have begun. It would lift for two years a tax on medical devices and create a one-year moratorium in 2017 on a tax levied on all private health insurance. These elements are victories for parts of the health insurance industry that had coalesced to help pass the ACA in 2010. Since then, they have been trying to reverse some provisions that are onerous for them and that they say ultimately burden consumers.
Delaying the start of the Cadillac tax is widely regarded as the most important move because of the political dynamic that led to its inclusion in the deal and its potential impact on the U.S. health care system.
The White House opposes any repeal of this tax. Press secretary Josh Earnest reiterated that stance on Wednesday but said a two-year wait delay in its start would be “meager.” Meanwhile, some leading opponents of the tax said they would continue to press for it to be rescinded altogether.
The tax, currently scheduled to start in 2018, is intended to rein in high-priced insurance policies offered through employers by placing a 40 percent tax on the portion of benefits exceeding certain price thresholds. Under the new agreement, the tax would be postponed until 2020.
For a law that has stoked acrid partisanship before its enactment five years ago and ever since, dislike of the Cadillac tax stands out as a rare point of agreement between Republicans and many Democrats — though their reasons differ. GOP lawmakers are eager to kill the tax as part of their overall disdain for the health-care law and their preference for lower taxes in general. The Democrats opposing the tax are sympathetic to major labor unions, who have been striving to eliminate it because some members have generous health benefits that they fear would be weakened.
According to a recent analysis by the Kaiser Family Foundation, about 1 in 4 employers can be expected to offer health plans in 2018 that are expensive enough to be affected by the Cadillac tax. After that, the tax’s reach will expand quickly, because it is tied to the rate of inflation and insurance premiums have been growing more rapidly than that rate — meaning that more and more health plans will be ensnared as time goes on.
The analysis shows that 30 percent of employers will be affected by the tax by 2023 and 42 percent five years after that, if their health plans remain unchanged and health costs continue upward at the same pace.
For this reason, deferring the tax for two years alone “has very minimal effect on the law, on revenues and health care costs,” said Larry Levitt, a senior vice president at Kaiser.
The congressional Joint Committee on Taxation has estimated that the tax will bring in $2.2 billion in 2018 and $7.2 billion in 2019. Its revenue would balloon after that, totaling an estimated $91 billion by 2025.
Peter Orszag, an economist who was Obama’s first director of the Office of Management and Budget, said in an interview that “the big concern with delay is, it’s not a delay, it becomes a rolling permanent deferral.” And that, he said, would undermine an essential “pillar” of the law: the goal of slowing the rise in health-care spending.
To avoid the tax, Orszag said, employers would have a strong incentive to seek out lower-price health plans that in turn control their own costs by relying on more efficient hospitals, doctors and other providers of care.
Yet Tom Leibfried, a health-care lobbyist for the AFL-CIO, said “we don’t buy the logic” that the tax’s ripple effect would drive down costs. Employers, he said, already have been eager to lower their expenditures on employee benefits, but that has not led to major reductions in health-care prices.
“Increasing the workers’ pain” through skimpier health plans “is not the best way to target that problem,” Leibfried said.
Even with the Cadillac tax postponed until 2020, companies would still cut benefits in anticipation of it. For that reason, he said, “We expect that means we are going to work to repeal the tax fully.”
All three Democrats who are running for president have embraced the idea of repealing the Cadillac tax, not just deferring it. The Republicans favor abolishing the ACA.
The Obama administration has made several changes as the ACA has been implemented since 2010 — among them, delaying requirements that many employers offer health benefits to workers and allowing consumers to temporarily keep health plans that did not include all the “essential benefits” defined under the law.
Despite more than 50 votes by the Republican-led House to repeal the law, Congress has adopted just one change, cutting a requirement that large employers automatically enroll in health plans workers who do not sign up on their own.