Why the Obamacare Cadillac Tax Might Be Out of Gas
Health Care

Why the Obamacare Cadillac Tax Might Be Out of Gas


The House Republican bill to avert a government shutdown and fund federal spending for four more weeks also calls for delaying implementation of three Obamacare taxes:

  • A 2.3 percent tax on medical devices would be delayed for two years.
  • The "Cadillac tax" on high-cost health care plans would also be delayed for two years.
  • The health insurance tax, a fee on insurance companies to help pay for health care subsidies, would remain in effect this year but be suspended in 2019.

But as Axios’ Caitlin Owens explains, the decision to delay the “Cadillac tax” — a 40 percent excise tax on some high-priced employer-provided health insurance plans — means Obamacare’s “main cost-containment measure,” never implemented, is once again being kicked down the road.

The tax is widely disliked. Business groups and labor unions both oppose it, and politicians in both parties have fought against it — but many leading economists favor it as a key way to curb health care spending. The tax is meant to spur employers to offer less generous coverage to their workers, shifting to cheaper plans with higher deductibles and out-of-pocket costs. But while conservatives have backed such “cost-shifting” in general, “almost half of all health insurance in the U.S. comes from employers, and no politician really wants to be on the hook for letting their constituents with employer coverage pay more for it,” Owens writes.

The Cadillac tax carries other risks too. "When you raise cost-sharing, people use fewer services, and that brings health spending down. Unfortunately, people generally cut back on needed care as well as wasteful care. And really annoy workers, which is part of why there’s so much opposition to the tax," Larry Levitt of the Kaiser Family Foundation told Owens.

Still, forgoing the Cadillac tax means one less tool that could be used to try to bend the curve on health care spending. And yet another delay raises the question of whether the tax will ever be imposed at all.