The House of Representatives voted last Wednesday to repeal the “Cadillac tax” on high-cost employer health insurance. House lawmakers came together to repeal the provision that levies a tax on high-cost health insurance plans by a vote of 419 to 6. It will next be considered by the Senate.
The tax was designed to help keep health care costs down by discouraging overly-generous health insurance plans. This disincentive was to the tune of a 40% tax on employer plans that exceeded thresholds projected to be $11,200 for single coverage, and $30,150 for family coverage in 2022. These thresholds, which are the combined spend by both employer and employee for health coverage, were set to increase with the rate of inflation. In other words, the tax would be encouraging employers to make insurance plans less benefit-rich in order to try and control the growing cost of health care.
This tax had its flaws, as there was no adjustment for employees who live in areas where healthcare is expensive like Alaska, compared to the Midwest where healthcare is relatively inexpensive. Another issue with this tax, is that it was set up to rise with the rate of inflation. Health care costs typically grow at a faster rate than inflation, and with last year’s government projections, health care spending would rise roughly 1% faster than economic growth annually through 2026