Has the budget package totaled the Cadillac tax?

The temporary freezes on three Affordable Care Act taxes approved by Congress last week won't have an immediate impact on the law's coverage expansions, but could damage its financing if the taxes are indefinitely suspended or repealed, experts say.

Congress approved the tax delays as part of a sweeping package of tax cuts worth more than $600 billion. Lawmakers also approved a $1.15 trillion spending package.

The tax legislation includes delaying for two years implementation of the ACA's so-called Cadillac plan tax, which was scheduled to go into effect in 2018. It also freezes for two years the law's 2.3% excise tax on medical devices that began in 2013, a big win for the device industry that's expected to boost profits. And it delays the tax on health insurance premiums by one year, which could lower premiums.

Those changes are projected to cost more than $30 billion over two years, according to Congress' Joint Committee on Taxation. The White House said the president will sign the tax and spending bills.

The package includes a $2 billion funding increase for the National Institutes of Health, and a continued requirement that the ACA's risk-corridor program, which compensates health insurers that sign up sicker-than-expected populations on the insurance exchanges, be deficit-neutral. That provision has been blamed for financial losses among many insurers selling exchange plans.

Not included in the legislation was a provision hospitals sought to exempt those currently building outpatient facilities from recent Medicare site-neutral payment rules.

The delay of the three ACA taxes was the culmination of several years of intense lobbying by labor unions, employers, medical-device makers, and health insurers to roll back those levies. It resulted from a deal between Democrats, who support the ACA but want to please their labor union allies who hate the Cadillac tax, and Republicans who oppose the entire ACA and need Democratic support to roll back other financing mechanisms as well. Some observers see the deal as a shrewd way for House Speaker Paul Ryan to chip away at the law's foundations with the goal of eventual repeal.

Of the three delayed ACA taxes, there was the greatest concern about the Cadillac tax, because the Obama administration and many economists argued that it would help control healthcare spending.

It imposes a 40% levy on the value of employer-sponsored plans that exceed $10,200 for individuals and $27,500 for families. About a quarter of employer health plans would have been subject to the tax in its first year, increasing to 42% by 2028, according to the Kaiser Family Foundation.

Many employers have been shifting more costs to employees through higher deductibles and cost-sharing, and have cited the looming Cadillac tax as a factor.

Loren Adler, research director at the Committee for a Responsible Federal Budget, a deficit hawk advocacy group, said if the tax ultimately is repealed, which he thinks is likely, employers will reduce their efforts to control the costs of employee health benefits. Congress, he said, is losing sight of the importance of the ACA's pay-fors and cost-control features. “It's basically just economists and policy wonks pushing for it,” Adler said. “And economists aren't great at messaging, apparently.”

James Klein, president of the American Benefits Council, which represents employers, said his group sees the two-year delay of the Cadillac tax “as a first step toward the ultimate goal of repeal.”

He said the federal estimate of how much revenue the tax would bring in was greatly overstated because it assumed employers would increase wages as health benefit costs fell, boosting federal income-tax collections. “Employers just simply say that that's not going to happen,” Klein said.

What really matters is how the next president approaches the issue of the Cadillac plan tax, said Linda Blumberg, a healthcare researcher at the Urban Institute.

The three Democratic presidential candidates all have called for repealing the tax, which labor unions hate. Some GOP presidential candidates have called for limiting the tax exclusion for employer health plans, but also have denounced the Cadillac plan tax.

Blumberg said that while there will be an effort to find alternative cost-containment tools, powerful stakeholders will resist, making it difficult to reach political consensus. “When you say cost containment, that means somebody is getting paid less on the provider side,” Blumberg said.

Theda Skocpol, a Harvard University professor of government who studies healthcare reform, warned that repealing the taxes without replacement revenue will create strong political pressure after the 2016 elections to shrink ACA coverage expansions. “This is a dangerous, slippery slope toward squeezing progressive and adequate funding for health insurance, which will eventually lead to a reduction in benefits,” she said.