A budget proposal from the Republican Study Committee, representing a large group of House Republicans, proposes capping the employee tax exclusion for employer-provided health care benefits. Congress permanently repealed the Cadillac Tax in December 2019 after opposition from employers, including impactful estimates by HR Policy, and organized labor, over concern the tax would not accomplish the objective of controlling costs but instead raise costs for employers and employees.
Background: The Affordable Care Act imposed what is known as a Cadillac Tax, a 40% excise tax on the portion of employer-sponsored health care premiums above $11,200 for single individuals and $30,100 for family coverage (CBO estimate for 2022). The intent was to use the revenue from this tax to cover other ACA provisions, like premium subsidies. The tax was highly controversial, and never took effect, after being delayed twice and eventually permanently repealed. The Republican Study Committee budget proposal would provide a capped exclusion for all health care spending “by and on behalf of the tax filer” and states that the employer tax exclusion “drives hyperinflation and inefficiency of the health care industry.” The proposal goes on to say the current tax exclusion locks individuals into their jobs and prevents the “organic development of a competitive, transparent, and accessible health care market.”
Not all bad proposals: There are some HR Policy-supported proposals in the plan, including liberalizing the rules governing health savings accounts (HSAs) to eliminate the requirement that they are connected to a high-deductible plan.
Looking ahead: While the proposed budget plan will not become law, it does provide insight into how House Republicans may govern if they win control of Congress and the White House in the November elections. HR Policy will engage with members of the Republican Study Committee to reiterate the fact that increasing taxes on employers and employees will not reduce the cost of delivering health care.
