With the Cadillac Tax Postponed, There’s Time to Consider Alternative Approaches
<p>With Congress voting to postpone implementation of the Affordable Care Act’s “Cadillac tax” until 2020, policymakers now have ample time to decide if and how the controversial provision of the health reform law should be altered.</p><p>In a new Commonwealth Fund issue brief, RAND’s Christine Eibner and Sarah A. Nowak explore how the Cadillac tax in its present form—a 40 percent excise tax on total employer health insurance premiums in excess of $10,200 for single coverage and $27,500 for family coverage—will affect workers’ health insurance costs. Employer spending on health plan premiums is currently excluded from income and payroll taxes. Economists argue this encourages overconsumption of health care, favors high-income workers, and reduces federal revenue.</p>
<p>Eibner and Nowak find, however, that the Cadillac tax is a “blunt instrument” for addressing these concerns. As currently designed, the tax is likely to create inequalities based on factors outside of workers’ control, without doing much to lessen the regressive nature of the employer tax exclusion, they say. Alternative approaches, such as providing workers in employer-sponsored plans with income-based tax credits that can be adjusted for regional cost differences, might be more equitable and equally effective in containing health care cost growth.</p>