As the U.S. House of Representative was poised to vote on a repeal of the “Cadillac Tax” for health care plans, a new study shows that one in five employers may have to pay the tax if it goes into effect on schedule in 2022.

The Cadillac Tax has long been one of the most controversial and least popular elements of the Affordable Care Act (ACA). Designed as a way to both fund future health care costs to the ACA and encourage employers to move to more efficient and cost-conscious health insurance coverage, the Cadillac Tax has been opposed by a wide range of stakeholders, including employers, unions, and insurance plans. Implementation of the tax has been delayed twice by Congress, and the House is scheduled to vote on an outright appeal on Wednesday.

Breaking the threshold

On July 12, the Kaiser Family Foundation released an analysis of the Cadillac Tax, concluding that 21 percent of employers offering health benefit plans could be affected by the tax when it goes into effect in 2022—and that will increase to 37 percent by 2030.

The KFF study said Cadillac Tax—officially known High-Cost Plan Tax (HCPT), is based on the value of health plans that exceed designated thresholds, originally set at $10,200 for single coverage and $27,500 for family coverage.

The HCPT thresholds grow with inflation, and it is estimated they will be $11,200 for individual coverage and $30,100 for family coverage in 2022. Some employers with workers in high-risk industries or older workers face higher caps. Under ACA's current projections, the Cadillac Tax was scheduled to raise $193 billion between 2022 and 2029.

“Given that most estimates suggest that health costs will continue to increase faster than inflation over time, a growing number of employers will be subject to the tax unless they make changes to their health programs,” the study said. “The HCPT provides powerful incentives to control health plans costs over time, whether through efficiency gains or shifts in costs to workers in the form of higher deductibles and other patient cost-sharing.”

Industry road blocks

Health care stakeholders are nearly united in support of the Cadillac Tax repeal. “We applaud the House of Representatives leadership for scheduling a vote to repeal the so-called 'Cadillac Tax' on health benefits. Health care coverage is not a luxury good, and it shouldn't be taxed that way. The last thing our employees need or want is higher health costs,” said American Benefits Council President James A. Klein.

The Society for Human Resource Management also urged repeal of the tax, noting that many employers could be affected by it. “While the excise tax is only intended to target high-value plans, modest plans will also be impacted, meaning millions of Americans and their families could face higher copays and deductibles, causing some to decline employer-provided health care,” said Johnny C. Taylor, Jr., SHRM's president & CEO, in a letter to Congress.

Will Congress put up a stop sign?

The lack of support for the bill in nearly universal—except for economists. As noted by Paul N. Van De Water, an economist with the Center on Budget and Policy Priorities, losing that $193 billion in income will be a huge hit for the ACA's coffers. “Repealing the excise tax would primarily benefit higher-income taxpayers, who are more likely to have expensive health plans and pay higher marginal tax rates,” Van De Water writes. “If the tax were repealed and the cost not offset, the resulting higher deficits would be likely, over time, to impede needed investments and increase pressures to cut programs on which many low- and moderate-income families rely.

The repeal is on an expedited path in the House and has 359 co-sponsors, so its passage there is likely. However, its prospects in the Senate remain unclear. “The Senate never took up legislation to roll back another tax levied under the health care law, a 2.3 percent excise tax on medical devices, after the House passed it last year,” noted Mary Ellen McIntire, of Roll Call.

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Is the Cadillac tax headed for the scrap heap?

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