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Obama Administration Proposes Change to Cadillac Tax Threshold

02/05/16

  10:38:00 pm, by MedBen5   , 340 words,  
Categories: News, Health Care Reform, Taxes

Obama Administration Proposes Change to Cadillac Tax Threshold

White House

In hopes of salvaging the Affordable Care Act's unpopular "Cadillac" tax, President Obama has proposed revising it as part of the 2017 federal budget, using individual health insurance marketplace plans as a new threshold yardstick.

According to Business Insurance, administration officials revealed that the proposal would change the threshold for the 40% employer excise tax from an across-the-board amount to one that would vary based on regional individual health care costs. In any state where the average marketplace premium for "gold" coverage exceeds the current threshold, the tax trigger would be set at the level of that average gold premium.

“This policy prevents the tax from creating unintended burdens for firms located in areas where health care is particularly expensive, while ensuring that the policy remains targeted at overly generous plans over the long term if health costs rise faster than the tax thresholds,” Jason Furman, chairman of the administration's Council of Economic Advisers, and Matt Fiedler, the council's chief economist, wrote in a New England Journal of Medicine article.

The threshold value is currently set at $10,200 for individuals or $27,500 for families, based on the tax's original 2018 start date. With implementation now pushed back two years, these amounts will likely increase before the tax takes effect.

Employer groups say that the change is appreciated but insufficient. “Its impact in high-cost areas is just one of its many problems,” James Klein, president of the nonprofit American Benefits Council, said in a statement. “It also unfairly hits health plans that cover large numbers of women, older workers and families suffering catastrophic health events. In short, the Cadillac tax cannot be fixed. It must be repealed.”

Bloomberg View columnist Megan McArdle adds that applying a different criteria to the tax will ultimately prove self-defeating: "If you want to control costs, the areas you want to target are the ones with higher average costs. Instead, the administration is perversely giving those areas a special exemption from the tax."

The White House released the federal budget on February 9.

(Post updated February 10 to reflect proposal's inclusion in budget.)

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