Could the Cadillac Tax Be the New Doc Fix?


Some people say the “doc fix” is back under a new name. It comes in the form of Obamacare taxes, namely the “Cadillac tax.”

Rep. Joe Courtney (D-Conn.) has been crusading against the Cadillac tax for six years, since before the Affordable Care Act was signed into law. On Friday, the tax’s implementation was pushed back for the second time as part of a massive tax and spending bill.

There’s plenty of speculation that this won’t be the last time the Cadillac tax is delayed. For lawmakers and industry participants, it brings back memories of the Sustainable Growth Rate — also referred to as SGR or the “doc fix” — a now defunct annual adjustment to the Medicare doctor payment formula that was on the congressional agenda for almost two decades.

The Cadillac tax may evoke the same type of problem.

“In some respects…you’re dealing with an unworkable, rigid formula, a la SGR,” Courtney told Morning Consult. “If the tax [delay] stays around awhile, as it approaches on the horizon, there’s going to be a huge organic resistance in the country, just as there was with SGR, to ever let it happen. I would prefer that we don’t wait 17 years to get rid of it like we did with SGR. We really should stop torturing people in trying to plan for this.”

The health care law’s 40 percent excise tax on expensive employer-sponsored health benefits was originally slated to go into effect in 2013. As a result of Courtney and other opponents’ lobbying, the tax was pushed back to 2018 during the 2009 health-care debate. As a result of Congress’s latest action, it won’t go into effect until 2020. There’s plenty of reasons for Congress to just keep pushing back the tax.

“At best, it was a ‘wait and see’ kind of attitude back then, as well as folks who just said, ‘We’ll live to fight another day’ in terms of trying to stop this,” Courtney said in a phone interview. He introduced his Cadillac tax repeal bill in April, and it currently has 184 cosponsors. Of those, 154 are Democrats, meaning 80 percent of the House caucus advocates for a repeal of the tax. Courtney’s bill also has 30 Republican cosponsors, and a separate repeal bill sponsored by Rep. Frank Guinta (R-N.H.), has 125 cosponsors. There is some overlap.

Two other Obamacare provisions — a tax on medical device makers and a health insurance tax, known as HIT — were also temporarily suspended through the year-end legislation. While the Cadillac tax has the most obvious parallels to the doc fix, Congress may be willing to keep renewing those suspensions as well.

“I’ve already told the HIT people that they should change all their documents to reflect that HIT is now an extender provision,” said one Republican lobbyist. “You are likely to see this stuff on the table during every year-end tax negotiation.”

The Cadillac tax, in particular, has such vehement opposition because opponents say it is poorly crafted and falls heavily on workers’ shoulders. But defenders of the tax say that it raises revenue for the Affordable Care Act, deals with the employer-provided insurance tax exemption, and perhaps most importantly, combats rising health-care costs.

One economist supporter said the health industry and consumers would be “lucky” if the Cadillac tax follows the same legislative pathway as the doc fix. Ed Lorenzen, a senior advisor at the Committee for a Responsible Federal Budget, said that would be preferable to full repeal.

“At least the SGR led to Congress enacting alternative Medicare savings for several years before it was repealed,” he said. “Unfortunately the delay of Cadillac tax hasn’t started off so well. But the question is whether Congress looks to replace it with alternative savings, perhaps by addressing the employer exclusion directly.”

Courtney says economists’ grave forecasts about the fiscal impacts of gutting the Cadillac tax are overstated. He pointed to the success of payment-reform provisions in the Affordable Care Act. “What the law did, it was like a demand signal that fee-for-service is coming to an end,” he said. “And people know it out there. Medicare’s driving a lot of that in terms of the payment models it’s using.”

While Democrats have said that delaying the tax is simply amending the Affordable Care Act to make it stronger, Republicans have seized on the delay of the taxes as a victory against Obamacare.

The White House has been vocal in its support of the Cadillac tax. White House Press Secretary Josh Earnest shrugged off Republicans’ claims that delaying the ACA taxes — particularly the Cadillac tax — undermines the law. Although the White House opposed its repeal, Obama signaled he would sign a two-year delay into law.

“People have suggested that a two-year suspension of the Cadillac tax would somehow undermine or even put the Affordable Care Act at grave risk,” Earnest said. “If I had a nickel for every time that somebody inside the Beltway suggested that the Affordable Care Act was at grave risk, I’d probably be able to buy an actual Cadillac myself.”

Morning Consult