Cadillac Tax Versus Rolling Back Tax Credits

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Throughout his presidential campaign, Donald Trump referred repeatedly to the “really good people” he had working with him on his health care plan. When Trump finally introduced his health care ideas on his campaign website, many people complained that the ideas were vague, incomplete and unworkable. Trump explained what he wanted to fix, but he rarely laid out exactly how he would fix it.

Less than a month after Trump won the presidential election, his list of potential cabinet members continues to draw speculation – and debate, to put it mildly – from both sides of the congressional aisle. Trump appears to have chosen Tom Price for Secretary of the Department of Health and Human Services. Representative Price is a former surgeon from Georgia who hates Obamacare and cannot wait to replace it with his own program, which he calls the Empowering Patients First Act.

In his 2015 proposed health reform law, Price found ways to replace just about every stipulation in the Affordable Care Act (ACA) that would become Obamacare. Price even has an alternative to one of the more controversial aspects of Obamacare: the Cadillac Tax. In Price’s vision for the future of American health care, the Cadillac Tax would be replaced with a provision that lessens the tax benefit of employers who offer health care.

The Way Healthcare Taxes Work

In American tax laws, premiums paid through employer-sponsored health plans are not considered to be taxable income. As a result, companies can use elaborate health benefits as ways to lure new employees and retain existing employees without paying any additional income tax. It’s a tax break that costs the federal government approximately $260 billion per year in tax revenue.

The Cadillac Tax

The Cadillac Tax looks to tap into that lost revenue by putting a 40 percent tax on any employer-sponsored health insurance plan that has a value of more than $10,200 for individuals and $27,500 for families. The tax would apply to any value that is higher than those thresholds.

Employers hate the idea of the Cadillac Tax because it would make it almost impossible for smaller to medium-sized companies to offer health insurance that would attract new employees. Some business owners have even complained that the Cadillac Tax would prevent them from offering health insurance at all and would force them to send their employees to the federal marketplace for insurance.

Ever since the troops came home from World War II, getting good health benefits has gone hand-in-hand with having a good job. Small business owners complained that the Cadillac Tax was simply a way for the government to try and further weaken small businesses. In 2015, the Republican Congress listened to businesses and pushed the Cadillac Tax out to 2018. With the Republicans now running all three branches of the federal government, it’s expected that the Cadillac Tax will never see the light of day.

Tom Price’s Employer-Sponsored Taxes

While the Cadillac Tax is probably doomed, Tom Price’s replacement tax could very well be approved when he becomes the Secretary of the HHS. Price’s tax is not based on the value of the policy, but rather the cost of the annual premiums.

Under Price’s plan, companies would only be allowed to deduct up to $8,000 for single health plans and up to $20,000 for family plans. Any premium costs that exceed those thresholds would not be deductible. This means that Price’s plan has a hard cap while the Cadillac Tax only kicked in after a certain minimum threshold was met.

Which Plan is Better?

According to the National Conference of State Legislatures, the average annual family health insurance premiums for 2016 were $18,142. Under the Cadillac Tax, companies would not have to alter their tax planning at all if they met the average premium level. As with any average, there are some plans that cost more and others that cost less. But in the end, it would only be the very expensive policies that would be affected by either law.

What’s Next?

With Republicans in charge of Congress, it’s highly unlikely that the Cadillac Tax will be utilized. But that does not mean that Price’s rolled back version of the Cadillac Tax is a lock to pass. There are a lot of moving parts when it comes to healthcare reform, and these types of specific conditions take a lot of negotiation to get through Congress and onto the president’s desk.

There are lobbyists on all sides of this discussion hard at work trying to get Congress to see things their way. Dr. Price is dedicated to dismantling Obamacare, and cutting the Cadillac Tax before it takes effect is just one small piece of that long-term puzzle.

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