The White House has suggested narrowing the application of the Cadillac tax on high-end health insurance plans as part of President Barack Obama's fiscal 2017 budget, which will be released Tuesday.
The tax was delayed for two years as part of the omnibus budget agreement at the end of last year. It is now set to go into effect in 2020, although some political analysts say it could continue to be delayed indefinitely or dropped entirely.
The budget cost of the delay is about $20 billion over the next 10 years, according to the Joint Committee on Taxation and the Congressional Budget Office.
Economists have maintained that the tax is necessary for keeping down insurance costs because it discourages plans with especially generous benefits that can drive up healthcare costs.
In an article released online in the New England Journal of Medicine on Wednesday, the chairman and chief economist of the Council of Economic Advisers lay out the plan to change the tax so that any state with an average premium for the highest tier “gold” exchange plan that would exceed the tax's threshold would see that threshold reset to the average premium for those gold plans.
“This policy prevents the tax from creating unintended burdens for firms located in areas where healthcare is particularly expensive, while ensuring that the policy remains targeted at overly generous plans over the long term if health costs rise faster than the tax thresholds (which will rise with the overall Consumer Price Index),” wrote Jason Furman and Matthew Fiedler.
Business and labor union groups were quick to say the change wasn't enough and repeal of the tax is still needed.
American Benefits Council President James Klein said in a statement that he is happy to see the administration try to fix some of the tax's flaws, but the change doesn't go far enough. “(The tax) also unfairly hits health plans that cover large numbers of women, older workers and families suffering catastrophic health events,” he said. “In short, the 'Cadillac tax' cannot be fixed. It must be repealed.”
Rep. Joe Courtney (D-Conn.), who is an ACA supporter, has introduced legislation to scrap the tax entirely. He said in a statement that the tax was ill-conceived and is too blunt. “I believe that any tax on middle-class healthcare plans will simply create new barriers to affordable healthcare that will undermine central goals, and ultimate success, of the ACA,” he said. “I will continue to work with my colleagues in Congress to pass a full repeal of the excise tax.”
Neil Trautwein, vice president for healthcare policy at the National Retail Federation, said the change does “soften the blow” but doesn't do enough to counteract the underlying problems. “The Cadillac tax is bad policy. The solution to lowering health care costs is with providers, not the purchasers of care or coverage.”
Paul Van de Water, a senior fellow at the left-leaning Center on Budget and Policy Priorities, said the plan deserves serious consideration as a way of going forward with the tax.
The tax has a strong rationale and raises significant amounts of money, but it doesn't take into account that some areas have higher health costs than others. The tax could unfairly penalize employers offering plans that are not particularly generous but are in high-cost locations, he wrote in a blog post Thursday.
“While some suggest repealing the tax, reforming it to preserve most of its revenues and its ability to slow healthcare cost growth makes far more sense,” he wrote.
Obama's budget request is also expected to include $755 million for a cancer research initiative being led by Vice President Joe Biden, who has pledged to help researchers collaborate and find more treatment options in the next few years.
He has also announced a $1.1 billion request to address the epidemic of fatal overdoses on heroin and prescription opioids that has gripped the country.
Obama's budget will also have a legislative proposal to encourage the states that have not yet expanded Medicaid to do so. It would give them the same three years of full federal support that gradually lowers as the states that expanded in 2014 received.
