Do Obama’s new ‘Cadillac Tax’ changes go far enough?

by Jared Bilski

Consistent criticism about the ACA’s “Cadillac Tax” and its corresponding calculation method has led the Obama administration to do something that was unthinkable just months ago: Propose major changes to the controversial health reform provision.

Part of the administration’s budget proposal for FY 2017 includes a tweak to the current threshold for the Cadillac tax.

Prevents ‘unintended burdens’

The crux of the changes would address the inherent unfairness of having a single excise tax threshold that applies to plans when there is such a great contrast in healthcare costs throughout different geographic locations.

On the New England Journal of Medicine website, Jason Furman, chairman of the administration’s Council of Economic Advisers, and Matt Fiedler, the council’s chief economist, detailed how, under the proposed changes, the tax would be adjusted based on the cost of the average gold plan available on the state exchanges by saying:

The most significant provision specifies that in any state where the average premium for “gold” coverage on the state’s individual health insurance marketplace would exceed the Cadillac-tax threshold under current law, the threshold would instead 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 (which will rise with the overall Consumer Price Index).

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