Cadillac Designed as a way toboth fund future health care costs and encourage employers to moveto more cost-conscious health insurance coverage, the Cadillac taxhas been opposed by a wide range of stakeholders. (Photo:Shutterstock)

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

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The Cadillac Tax has long been one of the most controversial andleast popular elements of the Affordable Care Act (ACA). Designedas a way to both fund future health care costs to the ACA andencourage employers to move to more efficient and cost-conscioushealth insurance coverage, the Cadillac Tax has been opposed by awide range of stakeholders, including employers, unions, andinsurance plans. Implementation of the tax has been delayed twiceby Congress, and the House is scheduled to vote on an outrightappeal on Wednesday.

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Related: 'Coverage@Work' campaign targets health insurancetax and Cadillac tax

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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 benefitplans could be affected by the tax when it goes into effect in2022—and that will increase to 37 percent by 2030.

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

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The HCPT thresholds grow with inflation, and it is estimatedthey will be $11,200 for individual coverage and $30,100 for familycoverage in 2022. Some employers with workers in high-riskindustries or older workers face higher caps. Under ACA's currentprojections, the Cadillac Tax was scheduled to raise $193 billionbetween 2022 and 2029.

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“Given that most estimates suggest that health costs willcontinue to increase faster than inflation over time, a growingnumber of employers will be subject to the tax unless they makechanges to their health programs,” the study said. “The HCPTprovides powerful incentives to control health plans costs overtime, whether through efficiency gains or shifts in costs toworkers in the form of higher deductibles and other patientcost-sharing.”

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Industry road blocks

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

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

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Will Congress put up a stop sign?

The lack of support for the bill in nearly universal—except foreconomists. As noted by Paul N. Van De Water, an economist with theCenter on Budget and Policy Priorities, losingthat $193 billion in income will be a huge hit for the ACA'scoffers. “Repealing the excise tax would primarily benefithigher-income taxpayers, who are more likely to have expensivehealth plans and pay higher marginal tax rates,” Van De Waterwrites. “If the tax were repealed and the cost not offset, theresulting higher deficits would be likely, over time, to impedeneeded investments and increase pressures to cut programs on whichmany low- and moderate-income families rely.

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

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