The so-called "Cadillac tax" never went into effect, since lawmakers kept delaying it. Wednesday's 419-6 vote increases chances that the Senate will follow the House, going for full repeal. Beginning in 2022, the tax would slap a 40% levy on the value of health insurance plans above $11,200 for single coverage and $30,100 for family policies. The idea was to help control costs by putting a brake on the value of health insurance plans. To avoid the tax, insurers and employers might have to shift more costs to policyholders.
Based on Congressional Budget Office estimates, repeal would add $193 billion to the federal deficit from 2022-2029, by scratching projected revenues off the government's books. The nonpartisan Kaiser Family Foundation expects that about 1 in 5 employers offering health insurance would have at least one insurance plan subject to the tax in 2022, and the share would grow quickly over time.
A broad coalition of business groups and unions is pushing to kill the Cadillac tax, while policy experts have mounted a lonely defense. Unions oppose a tax on health benefits because health insurance is one of the most important issues for their members, and union plans are generally a cut above what non-union employers offer. Insurers and employers oppose the tax because they'd be the ones most exposed to its bite. About 160 million Americans are covered by workplace plans, still the largest source of coverage.
Despite the political risks of tampering with employer coverage, policy experts and economists across the political spectrum argued that the tax would start to get at a fundamental reason behind high U.S. health care costs.
Economists see health insurance benefits as another form of compensation. While the government taxes salary and hourly wages, the value of job-based health insurance is tax-free to workers and tax deductible for employers. Economists see that as an incentive to over-spend on health care, creating an income stream that enables hospitals, drug companies, and medical specialists to charge high prices and subsidizing services of questionable value.
Even if the Cadillac tax appears doomed, the idea of limiting government tax breaks for health insurance is likely to come back. Several such options are regularly listed the CBO's compendium of ideas for reducing government deficits.