Repealing the Cadillac Tax on Health Care


The so-called ‘Cadillac Tax’ was part of the Affordable Care Act and was intended to help curb the rising costs of care by taxing employers for choosing overly expensive, (Cadillac priced), health plans, for their employees. The thought was that it would curtail employers from passing those increased costs on to employees. The tax was intended to take effect in year 2022.  That has changed this week, when a bipartisan U.S. Congress moved to repeal the tax by a near unanimous vote of 419 to 6. Now, it goes to the Senate for confirmation.


This tax was one of the mainstays of the Affordable Health Care Act (ACA), to keep costs down, but many employers and labor unions hated it. (Unions would have been hit the hardest, because their health plans are so vitally important for membership sign-ups). Also, defeating the ACA clause meant that federal deficits would rise an estimated 200 billion dollars, over the next 10 years. Therefore, with this defeat, the Fed passes those costs on to consumers and that’s estimated at 1.2 trillion dollars, within that same period.


Employer sponsored health plans are the largest source of health coverage in the country, with an estimated 181 million persons covered. However, medical inflation has become bigger than all other inflation and the ACA clause was to help finance those overall health plans.  As care prices rose, employer plans were to be subjected to that tax. The labor unions said that would be a major disruption to their health plans and felt that taxing employee heath care was a bad idea and that the potential harm from this proposed tax was significant.


Kaiser Family Foundation said the tax would have affected 21% of all employers that offer health care benefits and it likely would result in those employers cutting back on the type and quality of plans offered.  They felt that if employers’ flex spending health accounts were also taxed, that percentage would jump to 31%. Republicans first rallied against it, and now the Democrats have come to the same conclusion, that this tax would significantly impact the middle class American worker.  They feel that rising costs are the problem, not the utilization of the plans.


Kaiser states that the thrust needs to be at the prices of drugs and services, not at how many people have access to them. Everyone, including the government, must work to lower these costs. Encouraging employees to be better consumers of health care is one way. Encouraging them to take better care of their own family’s health is another. This was a first step for House of Representatives to make. Now the Senate has to follow suit, for it to become law.