Don’t Do Away With the Cadillac Tax

Tweaking it would help serve the reason it came about in the first place: putting a brake on health care inflation.

The Cadillac tax, which would take effect in 2022, would apply to health insurance plans with premiums of more than $11,200 for individuals and $30,100 for families. But chances are that it won’t take effect in 2022, or ever for that matter. The tax has been under fire almost from the get-go, reminds Brian Blase in the Wall Street Journal. In his opinion piece, Blase, the former special assistant to President Trump at the National Economic Council, points out that the tax was originally set to take effect in 2018, but Congress blocked implementation twice. More pressing, the House last week voted 419-6 to repeal the tax.

Businesses, unions, hospitals and health insurance companies have all spoken out against the tax, says Blase. But it was supposed to generate $197 billion in total revenue from 2022-29, which is why the Cadillac tax gets plaudits from economists and deficit hawks, what Blase calls a “weak political coalition.”

With the right tweaking, though, the tax could be used to encourage the use of health savings accounts, which in turn would encourage patients to be wise consumers of health care.

“Instead of repealing the Cadillac tax, Congress should exempt both employer and employee HSA contributions from the calculation of the value of the plan for the purpose of enforcing the Cadillac tax,” writes Blase. “Exempting these contributions would give employers an incentive to offer their employees HSA-qualified plans and fund their accounts. This would erode the third-party-payment problem and nudge more Americans to consume health care the way they consume other services.”