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Tax Bill Means More Americans Subject to ACA Cadillac Tax

News  |  By Gregory A. Freeman  
   December 22, 2017

A provision in the tax bill that passed on Wednesday means that more Americans will be hit sooner with the Affordable Care Act's "Cadillac tax" on high-quality health plans. Consumer groups are urging Congress to repeal the tax.

The tax reform bill passed by Congress eliminates part of the Affordable Care Act by removing the penalties for not having individual health insurance, but it leaves intact another part of the law that imposes a hefty tax on health plans that have certain set threshold amounts.

The solution is to eliminate the Cadillac tax too, says a coalition of businesses, patient advocates, employer organizations, unions, local governments, healthcare companies, and consumer groups called the Alliance to Fight the 40/Don't Tax My Health Care. The coalition is urging Congress to repeal the portion of the ACA that imposes a 40% tax on health benefits above set threshold amounts that are adjusted annually for inflation.

In addition, The Tax Cuts and Jobs Act will cause more Americans to be hit sooner by the tax because it changes the way the threshold amounts will be calculated, explains James A. Klein, president of the American Benefits Council, part of the coalition. The law now requires that the tax be assessed using the "chained Consumer Price Index (CPI)," which means the thresholds will be increased at a much slower rate.

"This will subject more Americans to the Cadillac tax sooner because healthcare inflation will outpace any increase in the thresholds using the new chained CPI," Klein says.

"The clock is running out for millions of Americans whose healthcare costs are rising because of the Cadillac tax," he says. "Congress should act now to address this onerous tax that forces employers to reluctantly cut benefits and increase out-of-pocket costs in an attempt to avoid it."

The tax will discourage employers from creating innovative and cutting-edge benefit plans to help maintain a healthy workforce, Klein says.

"Taxing the benefits could compel employers to stop offering wellness programs or on-site clinics and, ultimately, drive up costs for workers and employers, alike," he says. "Repealing this tax has strong bipartisan, bicameral support. Now is the time for Congress to protect healthcare coverage for working families."

Rep. Mike Kelly (R-PA) and Rep. Joe Courtney (D-CT) are leading the effort in the House to repeal the tax and have more than 220 cosponsors on H.R.173. In the Senate, the bipartisan effort is spearheaded by Sen. Dean Heller (R-NV) and Sen. Martin Heinrich (D-NM) with 20 Senate cosponsors on S.58.

"Workers simply can't afford to pay more for their healthcare," says Rep. Mike Kelly. "We must repeal the Cadillac tax before it taxes workers out of their healthcare coverage. I stand committed to working with my colleagues to send the Cadillac tax where it belongs—to the junkyard."

More than 1 million workers who have employer-sponsored health insurance plans will be hit by the Cadillac tax in Nevada, said Sen. Dean Heller.

"That is why I have led the fight to fully repeal this onerous tax, and authored legislation that would do just that," he says.  "I will continue to encourage my colleagues to act to prevent hardworking Nevadans and Americans around this country from bearing the burden of the Cadillac tax's devastating impact."

Employer-sponsored health coverage protects more than 178 million Americans, the coalition notes. 

Gregory A. Freeman is a contributing writer for HealthLeaders.

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