Washington Post Criticizes Senate Vote to Repeal the Cadillac Tax

There were many legislative developments in the past week, including the passage of a five-year highway bill and continued negotiations on a tax deal, and among them was the Senate's narrow passage of a reconciliation bill to repeal many key provisions of the Affordable Care Act. There were several amendments considered, but one of the more discouraging adopted amendments was a 90-10 vote to repeal the Cadillac tax (the original legislation instead delayed its start date to 2025). Over the weekend, the Washington Post editorial board rightly criticized the vote as a backwards step for health care policy.

The editorial gives a good summary of some reasons to claw back the tax preference for employment-based health insurance, as the Cadillac tax would do.

Current law provides a tax exclusion for employer-paid insurance. This is how nearly half the public gets insurance, but the exclusion subsidizes overutilization of health care, causes “job lock” by linking work and insurance, and redistributes income upward because tax breaks increase in value for higher income brackets. According to the Congressional Budget Office, 34 percent of the benefits go to the top 20 percent of income earners.

Repealing the exclusion would have been a progressive way to curb health-care costs and raise revenue for coverage expansion. Taxing high-value plans was a second-best solution that would claw back $87 billion in revenue between 2018 and 2025, according to the CBO.

Thus, moving to repeal the tax would be a step-back from a fiscal perspective and a health care cost growth perspective. The editorial board further notes that repeal would run counter to what both parties have supported in the past.

On the Republican side, the tax, or something like it, has formed a part of past health reform proposals and would probably be part of future ones as well (former Florida governor Jeb Bush includes a version in his Obamacare replacement idea). As for the Democrats, opposition to the tax belies their professed commitment to progressive taxation — to say nothing of loyalty to President Obama and his signature domestic policy achievement.

Since the amendment is attached to elimination of many other key ACA provisions, it is certainly going to be vetoed, so it stands little chance of becoming law. But the lopsided support for repealing the Cadillac tax is not a good sign (the tax deal being worked out reportedly includes a two-year delay of the tax). Given its importance to the long-term budget outlook, lawmakers should only repeal the Cadillac tax if they are willing to replace it with another substantial health care cost control policy.