Updated Jan 18, 2018

Congress once again looking to kick health cost control down the road

House Speaker Paul Ryan. Photo: Tasos Katopodis/Getty Images

Congress is once again poised to delay the Affordable Care Act's "Cadillac tax" on high-value employer health plans, and many economists are once again disappointed by the decision.

Between the lines: Messing with employer health coverage is politically treacherous, and that's why the Cadillac tax may never go into effect. But it's the ACA's main cost containment measure — meaning health care costs will keep climbing without a check economists deem important.

How it works: Most employer-based health benefits aren't taxed. But the Cadillac tax is a 40% excise tax on employer-based plans whose value exceeds a certain threshold, which rises over time. It was included in the ACA for two big reasons: to help finance the law, and to help contain rising health care costs.

  • It's never gone into effect. It was scheduled to take effect in 2018, but Congress delayed it for two years at the end of 2015.
  • The threshold for "Cadillac" plans is set to grow slower than the rate of medical inflation, meaning more plans and employees will get hit over time.
  • The new tax law slightly accelerates the rate at which the tax is expected to hit workers. A November estimate by Mercer found that 18 percent of employers with more than 50 employees have plans that would be subject to the tax in 2020, and 27 percent of employers with more than 500 employees do.

The political problem: The idea behind the tax is that it will cause employers to offer less generous plans to employees, resulting in higher deductibles and other out-of-pocket costs, and that cost-shifting will increase over time.

Conservatives have generally supported a very similar shift toward higher out-of-pocket costs and lower premiums in the individual market and government programs. But almost half of all health insurance in the U.S. comes from employers, and no politician really wants to be on the hook for letting their constituents with employer coverage pay more for it.

The other side: Most health care economists say some curb on employer benefits is good, because it will help lower health care costs.

  • "When you raise cost-sharing, people use fewer services, and that brings health spending down. Unfortunately, people generally cut back on needed care as well as wasteful care. And really annoy workers, which is part of why there’s so much opposition to the tax," said Larry Levitt of the Kaiser Family Foundation.
  • Matthew Fiedler of the Brookings Institution said the Cadillac tax could ultimately give insurers more bargaining power against providers.
  • "More generally, because employers have to compete for workers, they would have strong incentives to be judicious in making plan design changes...The winning strategy would be to go after low-value benefits, exactly what we want them to do," Fiedler added.
  • "The bigger question is whether at some point we will revisit the entire financing structure of the ACA (which would require another broader discussion around repeal and replace)," said Lanhee Chen, a conservative health wonk at Stanford.

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