The delay of the tax on high-end insurance plans will not have much of an immediate effect on healthcare economics or the success of the Affordable Care Act, but if the tax continues to be pushed off and is essentially dead, consequences loom large.
Congress announced the omnibus budget agreement and tax extenders bill late Tuesday with a vote planned before the end of the week. White House officials have indicated the president will sign the package into law.
It includes delaying for two years implementation of the "Cadillac" tax, which was scheduled to go into effect in 2018. It also freezes the medical-device tax that began in 2013 for two years and delays the annual tax on health insurers by one year.
The Obama administration is one of the last defenders of the so-called Cadillac tax, which has never been politically popular even among those supporting the ACA. Several Democrats, including the top contenders for the party's nominee for president next year, have come out in favor of repealing it.
The Cadillac tax is 40% of the value of employer-sponsored plans that exceed certain thresholds: $10,200 for individual coverage and $27,500 for family coverage. An August report from the Kaiser Family Foundation estimated that about a quarter of businesses would be subject to the tax in its first year, increasing to 42% by 2028.
Employers have been scaling back medical coverage for years, shifting more of the direct costs to workers and their families through higher annual deductibles and cost-sharing. Increasingly, they have cited the Cadillac tax as a factor.
Loren Adler, research director at the Committee for a Responsible Federal Budget, said estimates show the delay of the Cadillac tax and pause of the device tax will cost about $36 billion in the next few years but will increase dramatically after that.
If the tax is fully repealed, which Adler said looks likely, its check on healthcare cost growth will also fall by the wayside.
Employers will likely stop any investment in controlling costs with the Cadillac tax at least on hold, he said.
The ACA was crafted to strike a balance between increasing insurance coverage and controlling healthcare costs, but as time passes, politicians are losing sight of the importance of the pay-fors, he said.
“It's basically just economists and policy wonks pushing for it,” Adler said. “And economists aren't great at messaging, apparently.”
In October more than 100 economists signed a letter asking Congress not to “weaken, delay or reduce the Cadillac tax until and unless it enacts an alternative tax change that would more effectively curtail cost growth.”