House Passes Legislation to Repeal Cadillac Tax

August 27, 2019

In July 2019, the U.S. House of Representatives overwhelmingly passed the Middle Class Health Benefits Tax Repeal Act of 2019 (H.R. 748), which eliminates the so-called “Cadillac tax” element of the Patient Protection and Affordable Care Act, often referred to as the Affordable Care Act or ACA.

The Cadillac tax was intended to fund certain ACA benefits and exert downward pressure on rising healthcare costs. Application of this tax—requiring plan sponsors and insurers to pay a 40% excise tax on the excess cost of employer-sponsored health coverage for employees—has been delayed twice by Congress. 

The Cadillac tax threshold is currently set at $10,200 for individual coverage and $27,500 for families, with amounts slightly higher for pre-65 retirees and individuals in a high-risk career. The tax aims to “reduce tax-preferred treatment of employer-provided healthcare, reduce excess healthcare spending by employees and employers, and help finance the expansion of health coverage under the Affordable Care Act (ACA).”

Opponents contend that, in operation, the Cadillac tax would be levied on employer-provided health plans offered to many middle-class workers and adversely affect employer incentives to offer health benefits. Notably, health benefits included in the calculation to determine application of the Cadillac tax included employer-provided health savings account (HSA) and health reimbursement arrangement (HRA) benefits.

Despite potential benefits, employers and other industry leaders have long spoken out against the tax and its negative impact on employers and employees. According to the data from the National Business Group on Health (NBGH), 73 percent of employers would be affected by the tax in 2022, increasing to 94 percent by 2026.

The recent 419-6 vote in the House is an indication of broad bipartisan support to repeal the Cadillac tax. While a Senate version of the bill has more than 60 co-sponsors, it is unclear at this time when—or whether—the legislation will be taken up in the U.S. Senate in the limited time remaining in the 2019 session. Repeal cannot occur without the Senate and House passing identical legislation, enacted with President Trump’s signature.