So-called Obamacare Cadillac tax repealed by the House

The so-called “Cadillac tax” of 40% on high value health plans has been repeatedly delayed, but has now been repealed by the House with the Senate likely to follow.

What about the revenue the tax was supposed to generate? Eh, who cares.

For many workers though, the damage has already been done. In anticipation of the tax and seeking to void it, many employers have trimmed benefits (shifted more costs to workers).

In any case, the theory that generous coverage and limited out of pocket costs encourages (sometimes unnecessary) use of health and higher costs is out the window and many embrace the mystical “free” health care strategy. No deductible, no copays, no premiums.


  1. My comment pertains to the term “Cadillac”. I’m in my 70’s, so I remember when the term Cadillac was meant to confer a great complement. My organic chemistry professor said our new lab equipment was Cadillac class stuff.

    This past week, a small non-descript SUV passed me on the highway. I noticed it did have the Cadillac emblem on the back. It is manufactured in the same plant as the Chevrolet, the biggest difference between the two vehicles is the brand name slapped on the front and back. I wonder what young people understand the term to mean.


  2. I never really understood what “Cadillac plans” were or the gold, silver, pink or whatever color plans were either. I never understood if you are forcing everybody under Obamacare to have insurance why you would tax them to prevent people from picking the best plan that they could afford to buy. It is also assume that patients like going to doctors like they like to eat in restaurants. Today, I’ll see this specialist and have these extra tests done because it is covered in my plan. I don’t know anybody that has the time or wants to do this. It is also almost impossible for me to compare costs to shop around while laying on my back in a hospital.

    But this is what I do understand. It is assumed that a plan that has more coverage will cost more to use thus will have higher premiums. These plans might also have lower or no copays in exchange for higher premiums. Because some people might be able to afford this the government wanted to tax these “rich” people 40% not to use these plans?

    Under Obamacare many preventive care and “routine” services were to be provide for free. These same services might have been included under the Cadillac plans before they were mandated.

    Under Obamacare, if you could not afford your mandatory insurance you could buy subsidized insurance for little or no cost. My sister-in-law was getting health insurance for $6.75 a month the first year it was offered.

    So the Cadillac tax was cost shifting and taxing people into not having good insurance while giving the same free or include services that were taxed to people who didn’t have insurance before.

    I only saw the tax as a way to get one size fits all standard of care to make it easier to have a national health network like some countries in Europe. Get in line this is what we will treat you for. In theory, if the 40% tax was to fund Obamacare and to discourage people from buy expensive plans, which overtime would reduce tax collection; the funding of Obamacare was doom via this tax anyway. With getting rid of it at least now nobody can point to projections of how much money that they might collect as a funding source.


    1. Dwayne, the Cadillac Tax is part of section 4980I of the tax code. It only applies to employer sponsored health care plans. It is designed to curtail the tax preferences employers/workers receive on employer-sponsored health coverage, putting more money in the pockets of the federal government. Essentially, it sets an arbitrary dollar limit, where if the cost of coverage (calculated as only the IRS can) exceeds that arbitrary limit, a 40% excise (non-deductible) tax applies to the excess cost over the arbitrary limit. The Cadillac tax does not apply to public exchange coverage, Medicare, Medicaid, Medicare Siupplements (unless provided by the employer). Economists estimated that only ~25% of the savings to the federal budget will come from the tax itself. As Dick notes, the majority of the savings would (have) come from employer’s changes to coverage to avoid the tax.

      So, a couple of observations:
      There is no requirement that the employer pay the tax. The tax is assessed on the claims administrator/insurance company, then passed back to the employer plan (probably in the form of a higher future premium for insured plans, and as a bill to be paid for self-insured plans), Some employers already decided to shift the tax back to the employees who triggered the tax, effectively encouraging them to select a lower cost option.
      Because the tax is not deductible, as Dick points out, most employers would, ultimately, try to avoid the tax by lowering the cost of coverage (and the only options to lower the cost of coverage are to reduce benefits (increase deductibles, copayments, etc.) and/or employ healthier people. The impact of the tax not being deductible means that if you have to pay $100,000 in excise taxes, you would need to have ~$200,000 in profits to have, after income and other taxes, $100,000 left to pay the non-deductible excise tax.
      Because the dollar amount threshold is totally arbitrary, it makes no allowance for differences in the composition of your workforce. Some employers look at this as an opportunity to find ways to usher out older workers. And, for the handful of employers who still offer retiree medical coverage, those plan sponsors might eliminate coverage prior to Medicare (so people go to the public exchange for coverage), while perhaps maintaining Medicare Supplement coverage.

      There are a ton of other issues, items here. But, as it is possibly going away, let’s save those comments for a rainy day. ,


  3. Obviously, people are more than willing to vote for those who promise “free” stuff, without disclosing the funding requirements. A day or two ago, it was Senator Harris’ turn to promise Medicare for All where the revenues will magically come from someone else, perhaps the French. She refused to say that she would aggressively tax the middle class to fund this entitlement.


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