Full repeal of the “Cadillac” tax on “high-cost” employer-sponsored health coverage is one step closer to reality, after a bill (HR 748) to scrap the Affordable Care Act (ACA) levy passed the House July 17 in an overwhelmingly bipartisan 419-6 vote. Action now moves to the Senate, where companion legislation (S 684) now has 60 bipartisan cosponsors as repeal supporters are stepping up efforts to get legislation to the president’s desk this year.

Cadillac Tax Revisited

The twice-delayed tax is slated to begin in 2022 and apply a 40% excise tax to the aggregate cost of applicable employer-sponsored health coverages that exceed specified thresholds. The nonpartisan Congressional Budget Office (CBO) estimates that in 2022, the thresholds would be $11,200 for individual coverage and $30,100 for family coverage.

After 2022, those thresholds will be indexed to the growth of the chained consumer price index (C-CPI). CBO acknowledges that because health insurance premiums will probably continue to rise faster than inflation in the C-CPI, the Cadillac tax will likely affect a growing number of people over time.

Lost Revenue Ignored for Now

The House approved the Middle Class Health Benefits Tax Repeal Act without offsetting the CBO’s projected cost of $197 billion in lost tax revenue over 10 years. Although the House’s “pay-as-you-go rule” generally requires legislation to be budget-neutral, any offset chosen by Democrats might have drawn objections from Republicans and undermined bipartisan support.

On the other side of the Capitol, counterpart legislation sponsored by Sens. Mike Rounds, R-SC, and Martin Heinrich, D-NM, now has 60 bipartisan cosponsors, equally divided by party, giving supporters a critical filibuster-proof majority if the bill isn’t modified. The two lawmakers urged Senate leaders in a July 25 letter to “bring up repeal for a vote by the end of this year.” The broad-based Alliance To Fight the 40, to which Mercer belongs, and plan sponsors likewise are focusing on building Senate support and convincing Senate leadership to push the repeal measure to a vote.

The Senate is set to leave for its August break within days, but the measure could advance this fall as part of a larger legislative package. However, budget deficit concerns could lead Congress to instead enact another two-year delay with a cost of approximately $21 billion.

Repeal Effort Part of Broader Campaign

The effort to repeal the Cadillac tax is part of a broader campaign about the value of employer-provided health benefits. Many new members elected to Congress over the past decade don’t fully understand the importance of employer-provided health benefits that cover more than 181 million people nationwide. The immense value of employer-provided coverage is a central message of the Alliance to Fight the 40 and its mission to protect the current tax treatment of employer-provided coverage.

Related Resources

Non-Mercer Resources

• HR 748, the Middle Class Health Benefits Tax Repeal Act (Congress, July 22, 2019)
• S 684, the Middle Class Health Benefits Tax Repeal Act (Congress, March 6, 2019)
• Estimated Cost of HR 748 (Congressional Budget Office, July 17, 2019)
• Alliance To Fight the 40

Mercer Law & Policy Resources

• Top 10 Compliance Issues for 2020 Health and Fringe Benefit Planning (June 25, 2019)
• 2019 Compliance and Policy Outlook for Employer-Sponsored Health Benefits (Feb. 6, 2019)

Other Mercer Resources

• 2019 Outlook for Healthcare Issues in Congress (Jan. 24, 2019)
• Leading the Way: Innovations in Health Coverage (Mercer and the American Benefits Council, May 2018)