Excise Tax on 'Cadillac' Plans

The Issue

As health coverage expands to tens of millions of Americans, some individuals with employer-sponsored health coverage are seeing their benefits decrease. One of the most significant, and controversial, provisions of the Affordable Care Act is the new excise tax on high-cost health plans proposed to both slow the rate of growth of health costs and finance the expansion of health coverage. The provision is often called the Cadillac tax because it targets so-called Cadillac health plans that provide workers the most generous level of health benefits. This brief reviews the debate for and against the Cadillac tax.

What's Next

Perhaps the biggest and most apparent unanswered question about the excise tax is whether it will work as intended to achieve its dual goals of both raising revenue to fund health coverage expansion nationwide and lowering health care costs.

It remains to be seen if inflation of health insurance premiums will also cause more health plans to get hit with the excise tax over time. In addition, will health plans make the changes they need, either in the near term or closer to the excise tax effective date of 2018 and beyond, to avoid paying the tax? One aspect that both Democrats and Republicans do agree on about the excise tax is that it will make employers and employees pay much closer attention to their medical spending over the long run.