House Set to Vote on ‘Cadillac Tax’ Repeal

The U.S. House of Representatives is set to vote Wednesday on a bill that would kill the Affordable Care Act’s “Cadillac tax”–a move that would largely appease employers that have for years been calling for repeal of the surcharge on high-cost plans.

The tax, which is among the least popular provisions of the healthcare reform law, imposes a 40% levy of each employee’s health benefits above a certain threshold, adjusted annually for inflation. In 2022, the tax will be triggered when the cost of an employer plan surpasses $11,200 for an individual and $30,100 for a family. The cost is calculated based on spending on total health benefits such as the average cost of the plan, employer contributions to a health or flexible spending account and the value of coverage in certain on-site medical clinics.

The tax was originally created as a way to help fund the ACA, but it has been a recurring pain point for employers, with many calling for its repeal. Both Republicans and Democrats have come out in opposition of the provision.

The Cadillac tax was originally scheduled to take into effect in 2018, but it has been delayed by Congress twice; it’s currently set to be implemented in 2022.

“Repealing the excise tax would be good news for employers and employees,” says Steve Wojcik, vice president of public policy at the National Business Group on Health. “If it takes effect, it would drive up costs for employers and employees alike. Repealing it entirely would remove the uncertainty it has caused employers in planning their benefits strategy and would reassure the millions of employees who rely upon and value coverage offered by their employers.”

As the House is scheduled to vote on the tax this week, new research out from the Kaiser Family Foundation indicates the widespread impact of the provision if implemented.

Its analysis estimates that nearly a quarter of employers would be hit by the tax if it is implemented in 2022 unless employers change their health plans. An even larger share (31%) could be affected when workers’ voluntary contributions to FSAs are taken into account. The analysis also indicated that the tax would affect a growing share of employers over time, reaching 37% in 2030 without including FSA contributions–and 46% with them.

“Given that most estimates suggest that health costs will continue to increase faster than inflation over time,” the KFF says, “a growing number of employers will be subject to the tax unless they make changes to their health programs.”

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Kathryn Mayer
Kathryn Mayer is HRE’s former benefits editor and chair of the Health & Benefits Leadership Conference. She has covered benefits for the better part of a decade, and her stories have won multiple awards, including a Jesse H. Neal Award and honors from the American Society of Business Publication Editors and the National Federation of Press Women. She holds bachelor’s and master’s degrees from the University of Denver.