Obama Aims for More Targeted Cadillac Tax in Budget Proposal


President Barack Obama holds a press conference following the G20 summit in Antalya on Nov. 16, 2015.

Photographer: SAUL LOEB/AFP/Getty Images
  • White House wants to preserve unpopular Obamacare tax
  • Revised tax would account for regional cost differences

President Barack Obama will propose reducing the bite of the unpopular "Cadillac tax" on high-cost health insurance plans in the budget he releases next week, in a bid to preserve a key element of the Affordable Care Act.

Jason Furman, the White House Council of Economic Advisers chairman, wrote in the New England Journal of Medicine that the president’s plan would reflect regional differences in the cost of health care, reducing the tax’s bite where care is particularly expensive.

“This policy prevents the tax from creating unintended burdens for firms located in areas where health care is particularly expensive, while ensuring that the policy remains targeted at overly generous plans over the long term,” Furman wrote in the Journal article.

The tax was key in financing the Affordable Care Act’s insurance coverage expansions, but since passage of the law in 2010 the provision has come under assault by both large employers and labor unions. The year-end spending deal that Obama signed in December delayed the start of the Cadillac tax for two years, until 2020. The Congressional Budget Office said the two-year delay would result in lost revenue of $17.7 billion over 10 years.

‘Gold’ Plans

Under the ACA, health plans pay a 40 percent excise tax on the cost of their coverage over a threshold value, currently $10,200 for individuals or $27,500 for families. Those limits are expected to adjust upward before the tax takes effect in 2020.

Obama’s budget would raise the threshold at which plans are subject to the tax in states with higher health care costs. Instead of a single threshold across the country, employers could offer more generous coverage in states where “gold”-level plans offered on the ACA’s insurance exchanges cost more than the Cadillac tax limits. Gold plans are the second-most generous plans available on the exchanges.

The effect would be that fewer employers would pay the tax.

The White House says that taxing the highest-value health insurance plans will encourage efficiency by hospitals, doctors and other caregivers. Employers -- including labor unions that are among Democrats’ biggest supporters -- have opposed the tax as unfairly singling out businesses that provide their employees with generous health benefits.

The Affordable Care Act, also known as Obamacare, is one of the president’s signature achievements. Republicans in Congress have tried repeatedly to overturn it; on Monday, the House failed to override Obama’s veto of a bill intended to gut the law. By tweaking the Cadillac tax -- one of the most unpopular parts of the law -- Obama hopes to preserve a key piece of his legacy.

‘More Viable’

“In a way, it makes the underlying law more viable, but it probably will not mollify the opponents,” Chris Jennings, president of Jennings Policy Strategies and a former Obama aide, said in an interview.

Congress and Obama in December also enacted moratoriums on ACA taxes on medical devices and health insurers. The Treasury Department estimates 7 percent of people with employer-provided health insurance have plans subject to the 40 percent Cadillac tax.

“We encourage Congress to enact sensible improvements to the tax, and the administration has put forward its ideas for consideration,” Furman wrote. “We believe the most important step Congress can take is to ensure that the tax goes into effect without any further delay.”

Obama will release his budget proposal on Feb. 9.

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