Democrats Balk at ‘Cadillac-Tax’ Repeal Without Offsets


Momentum is building in Congress to repeal Obamacare’s so-called “Cadillac tax” on expensive health plans. But finding cost offsets to satisfy Democrats could be a problem.

The tax — slated to take effect in 2018 — is a 40 percent excise tax on employers that offer health plans exceeding $10,200 for an individual and $27,500 for a family. The tax is an attempt to rein in health-care spending by encouraging employers to offer less-generous health plans. It is also projected to generate $87 billion over a decade for the Affordable Care Act, according to the nonpartisan Congressional Budget Office.

Democrats are in a difficult situation on the issue. They are under pressure from both business and labor groups to repeal the tax, but it is also major revenue source for the ACA. For Republicans, it’s a nonissue because repealing taxes, particularly one in Obamacare, is easy to support.

While some Democrats don’t like the tax, they likely would not support its repeal unless a replacement revenue source is included. So far, two repeal bills have been introduced in the House, including one by Rep. Joe Courtney (D-Conn.) that has 118 Democratic cosponsors. The other bill, sponsored by Rep. Frank Guinta (R-N.H.), has 81 Republican cosponsors. But neither bill includes cost offsets.

What’s more, President Obama would surely veto any bill that repeals the tax.

“The concern is that this is a major pay-for for the ACA,” said Brian Collins, a senior policy analyst at the Washington-based Bipartisan Policy Center think tank. “It seems really unlikely that there is going to be enough support to actually pass something that decreases revenue by that much.”

Sen. Dean Heller (R-Nev.) plans to introduce his own bill to repeal the tax when Congress returns on Sept. 8, but the details of it have not been made public. A Senate Democratic aide said at least “some Senate Democrats will likely sign on to some kind of Cadillac tax repeal bill,” but added that offsetting the cost is still a concern.

We’ve been here before. Concerns over offsets have stymied attempts to repeal a smaller Obamacare tax on medical-device companies. While there was bipartisan support in the House to repeal the 2.3 percent medical-device tax in 2013, the Senate effort stalled in part over the lack of offsets.

If the Cadillac tax is repealed, Collins said Congress would be under pressure to find another way to reduce health-care spending. The Bipartisan Policy Center proposed a plan in 2013 to do just that by replacing the Cadillac tax with a limit on income-tax exclusions for employer health plans. Health insurance premiums would be subject to the exclusion, which would be set at the 80th percentile.

“Rather than having an excise tax, it would be a per-person or per-household limit,” Collins said in an interview. “Health-care benefits above that limit would be added to taxable income.”

Republican Sens. Orrin Hatch (Utah) and Richard Burr (N.C.) joined Rep. Fred Upton (R-Mich.) in releasing a similar health outline in February that would replace the Cadillac tax by capping how much income can be excluded from an employee’s taxes. The proposal has not been introduced as a bill.

Morning Consult