Can Congress agree on the Cadillac tax?

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Cadillac taxi?

Health care is too costly in the US. One reason is that health insurance premiums are fully tax deductible for employers. This distorts the market, causing employers and employees to prefer devoting the next dollar of compensation to healthcare rather than wages. That’s fine in any given year but over time it’s helped drive up healthcare spending and hold down wages.

One of the many things the Affordable Care Act did right was to start to address this issue with the so-called Cadillac Tax, an excise tax on high cost employer plans. Like everything in the ACA it has been attacked and derided by the law’s opponents. But many Republican plans have equivalent measures, which would cap the deductibility of health insurance. Either one of these approaches would help by causing employers to work harder to hold down healthcare spending and by generating tax revenue that could be used for other health law goals or for general purposes. The end of tax deductibility only kicks in at a high threshold, which means the impact in the early years is limited and everyone has time to get used to the new rules. I’d like to see Congressional leaders be brave and embrace some form of cap as a bi-partisan consensus move.

Alas, the caps are opposed by an array of forces: employers don’t want a new tax, labor groups are worried that benefits will be eroded and out-of-pocket costs increased, and the healthcare industry worries about a squeeze on revenue.

Without strong leadership in Congress, it seems doubtful that new legislation will be passed. So maybe the best bet is to leave the Obama era Cadillac tax in place, imperfect as it may be.

By healthcare business consultant David E. Williams, president of Health Business Group.

 

4 thoughts on “Can Congress agree on the Cadillac tax?

  1. Marta

    Oh. Wait. Healthcare costs are too high in the U.S., so they need to be taxed? Are you SERIOUS??? The only thing you’re advocating for is for higher taxes for everybody, none of which are going to resolve the gouging by the health insurance industry of their insureds. All the Cadillac Tax will do is put even more of a financial burden on the citizens of this country and potentially decimate the group health insurance benefits over 150 million people enjoy thanks to the tax deductibility of the premiums by the employer and employees. Abolish the Cadillac Tax! It’s an abomination.

    Reply
  2. Pingback: Health Wonk Review: Presidents’ Day edition | Health Business Blog

  3. Pingback: GOP ignores the Cadillac already in the garage | Health Business Blog

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