For the love of lower healthcare costs, don't scrap the Cadillac tax

The so-called "Cadillac tax" will not be implemented until the start of 2018, yet it is actually in serious peril. As a matter of fact, it has a chance of being one of the few taxes Congress has ever approved that could be repealed before it ever collects a single penny in revenue.

A quick refresher: The Cadillac tax is a 40 percent excise tax on companies for every dollar a health insurance plan costs beyond $10,200 for an individual and $27,500 for a family. Those are considered high-cost plans, usually with few exclusions and low out-of-pocket costs, and therefore treated in a way that would equalize their actual costs with lower-priced health coverage, which is typically freighted with pretty steep deductibles and co-payments.

"Too many Americans are struggling to meet the cost of rising deductibles and drug prices. That's why, among other steps, I encourage Congress to repeal the so-called Cadillac tax, which applies to some employer-based health plans, and to fully pay for the cost of repeal," Democratic presidential contender Hillary Clinton said in a recently released statement. Her major primary opponent, Sen. Bernie Sanders of Vermont, is also for repeal.

That the Cadillac tax has yet to go into effect is one of the reasons both can afford to advocate for its abolition. There is no infrastructure that the tax currently supports, and therefore no constituency that can be offended if it is repealed. It also permits Clinton and Sanders to appeal to crossover voters by appearing to advocate for tax cuts. Moreover, since the tax could hit people such as union members hard (they tend to get very generous health insurance plans), its repeal acts as another sop to a core Democratic constituency.

Republicans, of course, have all been gaga for repealing the Cadillac tax since the moment the ink began drying on the Affordable Care Act (ACA) five-and-a-half years ago. Of course, they would like to take the entire ACA down as well.

But repealing the tax appears to be an error. The fact is, the mere knowledge the tax is looming over the horizon has actually been forcing employers to curb their spending on benefits. The Congressional Budget Office originally projected the tax would raise $142 billion in revenues by 2023. It cut that estimate to about $80 billion after it became clear that many employers were rolling back their priciest healthcare benefits, according to a recent report by the Committee for a Responsible Federal Budget.

Indeed, the presence of too many ultra high-end insurance plans means hospitals and other providers are more likely to continue to engage in higher-than-needed utilization, knowing that there is a decent chance they can reap payments for all of the services provided. The tax also serves as an incentive for insurers--most of which are for-profits--to keep premiums down in order to avoid the tax.

That also appears to be a concern of many of the nation's leading economists. More than 100 of them--from both sides of the political spectrum--recently sent a letter to the leaders of the U.S. Senate's Finance Committee asking them not to repeal the Cadillac tax. "Repealing the Cadillac tax would add directly to the federal budget deficit, an estimated $91 billion over the next decade according to the Joint Committee on Taxation," a portion of the letter read.

But this is a decision being made by politicians, not by economists. They cherish being seen as tax-cutters, even if their constituents have no idea that the tax in question being eliminated still does not exist, or wouldn't be paid by them anyway.

So, expect the Cadillac tax to never see the light of day--while healthcare costs will inevitably rise higher as a result. - Ron (@FierceHealth)

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