Dr. Zeke Emanuel: Repealing Cadillac tax 'would be a big mistake'

Although some might view the bipartisan opposition against the "Cadillac tax" as a triumph, Ezekiel Emanuel, MD, PhD, and Bob Kocher, MD, say repealing the tax would be a "big mistake" in their jointly written op-ed in the New York Times

According to Drs. Emanuel and Kocher, Republicans "desperately want to show they can repeal some aspect" of the Affordable Care Act, and Democrats — including presidential candidate Hillary Clinton — want to eliminate or postpone the tax, too.

However, doing so would be a mistake, Drs. Emanuel and Kocher say in the article, because the tax would raise an estimated $91 billion in its first eight years. If repealed, politicians would have to find another source of revenue.

The Cadillac tax, would impose a 40 percent non-deductible excise tax on expensive health plans provided by companies to their employees beginning in 2018. The tax is intended to help control healthcare spending by incentivizing employers to scale back their employee health plans and shift some costs onto employees.

Most importantly, the tax makes sense, according to the Drs. "It was imposed to counter the negative effects of the government subsidy of company-paid health insurance. We can't get rid of that subsidy, but we can reduce its impact."

The subsidy came into law in 1954 when Congress made employers' contributions to their employees' health insurance premiums tax-free. The law incentivized employers to expand insurance. Currently, about half of all Americans are covered through their employer or the employer of a relative and benefit from the tax exclusion, according to Drs. Emanuel and Kocher.

However, the subsidy created major issues. "For one thing, it is hugely regressive," they say.

First, the wealthy receive nearly triple the financial benefits from the tax exclusion than people with lower incomes because they are subject to higher taxes and tend to have more expensive health insurance, accord to Drs. Emanuel and Kocher.

Second, the tax exclusion represents the largest U.S. tax break, reducing federal revenue by more than $250 billion per year. Ultimately, it has been a major driver of healthcare inflation: By covering more services and lowering the costs people experience, expensive health plans lead people to use a higher volume and more expensive healthcare services.

President Barack Obama supported reform on the tax exclusion because he and his congressional allies recognized that the healthcare law needed to combine changes to Medicare and Medicaid with modifications in the private insurance sector to effectively combat inflation, according to Drs. Emanuel and Kocher.

"If there is to be reform of the Cadillac tax, a responsible approach could be to limit the financial benefits of the tax exclusion to $2,000 (or less) for households making over $250,000 and totally eliminate it for households making over $1 million," they write. "This would raise additional revenue that could be used to soften the impact of the Cadillac tax on less well-off Americans."

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