The 2017 budget released by the White House puts forward a reform to Obamacare’s so-called "Cadillac tax," a surcharge on high-value insurance plans that has been postponed until 2020 under widespread, bipartisan opposition. Given that by 2020 it's possible the provision, as it exists now, will be killed entirely, the administration is attempting to put out a reform that could salvage it.
The tax has been labelled a "Cadillac" tax to imply that it only applies to the most extravagant of plans. That belied the fact that in many regions where healthcare and insurance costs are very high, it's more like a "Chevy" tax, applying to plenty of plans.
Because the dollar threshold for the tax is uniform nationally, it’s bound to affect many more people in a place like New Jersey, which has the highest employer premiums it the continental U.S., than in Arkansas, which has the lowest.
Another criticism is about the formula itself. Over time, the dollar threshold for when the tax takes effect is supposed to rise and fall with inflation. But that’s general inflation, not health care inflation specifically, and the price of consumer goods overall tends to rise more slowly than the price of medical care. From the perspective of most Americans, then, the dollar threshold for when the tax takes effect would seem to get lower and lower, potentially exposing more and more plans to the surcharge.
The administration’s proposal, which White House economists Jason Furman and Matthew Fiedler outlined last week in an article for the New England Journal of Medicine, would alter that formula. Specifically, it would set a different threshold for each state—and tie that threshold to the value of “gold” level plans that the Affordable Care Act makes available to consumers buying insurance on their own through the law’s new marketplaces.
In principle, this would address the geographic disparity issue, since the threshold would end up higher in states where insurance is already more expensive. It would also tie the tax to health care inflation, rather than the price of all consumer goods.
That's a good start to making this proposal—which is intended to slow health care cost growth in part by making it too expensive for people to actually use—better. But there's still the problem of it relying on making healthcare more expensive for people to use.
Cost-shifting is already a significant problem for plenty of people with insurance—about 20 percent of them, in fact.
Employers under the system would be expected to abandon those more expensive, more generous plans and economists supporting the tax say that will mean employers put more money into wages. That's a supposition that plenty of experts—including union leaders who have negotiated for robust health plans—seriously doubt.
These changes the administration is proposing could point the way for President Obama's successor to reform the tax (provided his successor wants to keep Obamacare). In the long term, it's going to take a lot more than a reformed high-value plan tax to bring down healthcare costs, particularly if the goal remains keeping healthcare affordable for everyone.