Obama proposes new Cadillac TaxNews added by Benefits Pro on February 5, 2016
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By Jack Craver

The Cadillac Tax may be on the ropes, but it’s certainly not a goner.

Congress suspended the implementation of the controversial excise tax on expensive health plans as part of a year-end spending deal, but unless it acts again, the tax will go into effect in 2020.

And acknowledging the challenges that Congress faces in approving a policy that has prompted backlash from business, labor and political leaders on both sides of the aisle, President Obama has floated an alternative Cadillac Tax that he hopes will be more feasible politically.

As part of his soon-to-be-unveiled 2017 budget proposal, Obama plans to offer a version of the excise tax designed to account for regional differences in the cost of health care, according to an analysis of the proposal published in the New England Journal of Medicine by Jason Furman, chairman of the White House Council of Economic Advisers, and Matthew Fielder.

The current incarnation of the tax is imposed on all individual health plans over $10,500 and all family plans over $27,500.

Such pricey plans are far more common in expensive areas of the country, such as large metropolitan areas in the Northeast or West.

So while a federal report estimated that only 7 percent of workers are covered by plans that would be hit by the Cadillac Tax in 2020, some areas would feel a much greater effect.

Although there were already provisions in the current Cadillac Tax that raised the tax threshold for employers with above-average numbers of older employees, for instance, the new version that Obama is proposing would add more exceptions.

In some states, the threshold would be raised instead to the average cost of a “gold” plan on the individual state insurance marketplace.

Like many other economists, Fielder and Furman are adamant that taxing the most generous health plans is key to slowing down the rapid growth of health care costs and spur employers to divert compensation from benefits to salary.

“Employers’ efforts will generate major benefits for our economy,” the authors write. “Both economic theory and empirical evidence suggest that the money employers will save on health benefits because of the tax will, in the long run, benefit workers by allowing for higher wages.”

Originally posted on BenefitsPro.com
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