Congress is currently considering a possible two-year delay of the “Cadillac”—or excise—tax, a 40 percent nondeductible tax on high-cost employer provided healthcare coverage that’s set to go into effect in 2018. Earlier this week, House Ways & Means Committee Chairman Kevin Brady indicated that a two-year delay of the Cadillac tax may be included as a part of a two-year “tax extenders” bill, which would serve as a backup plan if agreement can’t be found around a larger tax deal. But delaying the harmful Cadillac tax is simply not enough for the millions of American employees who rely on their health benefits accounts.
Opposition to the Cadillac tax is bipartisan and widespread. It is one of those rare issues that Democrats and Republicans alike agree upon, and have a common desire to do something about. Repealing the Cadillac tax is a stated priority of Harry Reid and Nancy Pelosi. A Senate provision to repeal the tax through a reconciliation bill received a 90-10 vote for repeal last week. Last month, a Republican Senator, two Democratic Senators, and the House’s two main champions for repeal— Democrat Joe Courtney and Republican Frank Guinta— came together and wrote a joint letter to President Obama requesting a meeting “to discuss a plan to eliminate this tax.” Hillary Clinton, Bernie Sanders, Martin O’Malley, and almost all of the GOP 2016 presidential candidates are united in opposition to the Cadillac tax.
With such indisputable and sweeping support for repealing the Cadillac tax, a two-year delay cannot be the solution we settle for.
We must remember that, although the Cadillac is currently set to go into effect in 2018, we cannot afford to wait any longer to come up with a solution. And delaying the implementation of the tax by two years means little relief for American employees in the long term. Per a recent study released by the American Health Policy Institute (AHPI) almost 90 percent of large employers surveyed are already taking steps to avoid triggering the tax in 2018, while almost 19 percent are curtailing or eliminating employee contributions to flexible benefits accounts such as Flexible Spending Accounts (FSAs) and Health Savings Accounts (HSAs). Delaying the Cadillac tax only temporarily stalls this detrimental trend, and American employees—especially middle-class employees who rely heavily on these accounts— will continue to feel the negative impact of having less and less opportunity to contribute to an FSA or HSA.
Unless the Cadillac tax is repealed in full or revised to exempt FSAs and HSAs, American employees across the country will find themselves swimming against an even stronger current made of up higher premiums and increased co-pays. A delay of the Cadillac tax will do little to really help hard-working employees who depend on their FSA or HSA to manage their healthcare costs.
Bill Sweetnam is the Legislative and Technical Director for the Employers Council on Flexible Compensation. He has also served as the Benefits Tax Counsel for the U.S. Department of the Treasury, and as Tax Counsel for the Senate Finance Committee.