Repeal of the Cadillac tax is picking up bipartisan steam and the support of several presidential candidates.
But few if any opponents of the tax on high-cost employer-sponsored health plans have said how they would fill the $87 billion pothole left by its repeal.
The closest idea has come from Vermont Sen. and Democratic presidential hopeful Bernie Sanders, who recently introduced legislation that would repeal the tax.
Sanders says that revenue to finance the Affordable Care Act should be raised through a surtax on the wealthiest people in this country. When that provision was included in the House version of the ACA, it was estimated to raise $460 billion over a decade.
Sanders' opponent, Hillary Clinton, said this week that the tax should be repealed and suggested, without providing details, that health policy reforms such as allowing Medicare to negotiate prescription drug prices would make up the difference.
The Congressional Budget Office estimates that the 40% tax (PDF), imposed beginning in 2018 on plans with annual benefits exceeding $10,200 for individuals and $27,500 for families, would bring in a total of $87 billion through 2025.
About 25% of U.S. employers would be affected without making changes to current plans, according to a Kaiser Family Foundation study. More plans would be taxable because thresholds increase annually with the Consumer Price Index instead of the rate of healthcare inflation.
The Kaiser study warns that the tax could push employers and unions, which for years have funneled taxable wage increases into untaxed health benefits, to now decrease or eliminate benefits, increase deductibles or adopt narrower provider networks.
But proponents say it would control health costs by discouraging companies from offering extravagant benefits.
Alain Enthoven, a professor at Stanford Business School, said repealing the tax would do away with the last serious attempt to rein in healthcare costs, which are siphoning funds away from education and national defense.
“We're spending way too much on healthcare in this country and it's crowding out other things,” he said.
Enthoven says he hasn't seen a solid proposal on making up the cost of the tax.
He says the best option would be to cap those federal income and payroll tax exclusions employers enjoy when they pay for their employees' high-priced coverage.
In 2014, the federal government lost $263 billion in income and payroll taxes because of the tax exemption on employer-sponsored health insurance, according to the Joint Committee on Taxation (PDF).
Henry Aaron, senior fellow at the Brookings Institution, also opposes repealing the tax but says he worries about the lack of ideas on how to make up for its financial loss.
“I want to emphasize that not paying for it would be doubly bad,” he said.
Aaron added that it's unlikely we'll see a stand-alone bill to repeal the Cadillac tax since the legislative calendar is tight and there are other attention-grabbing issues being discussed on the Hill.
He said it could get tacked onto another bill.
Stan Collender, executive vice president of Qorvis MSLGroup, said that while he doesn't think the tax is going away anytime soon, he wouldn't be surprised if the repeal is pushed even without a plan for replacing its financial loss.
About 100 economists and health policy experts of various political backgrounds signed on to a letter released Thursday that urges Congress to keep the tax without weakening or delaying it unless they implement another tax change that would curb the growth of healthcare costs.
