House Ways and Means Committee chairman Kevin Brady recently suggested eliminating the Affordable Care Act's “Cadillac tax” as part of an upcoming bipartisan spending agreement. The Cadillac tax is a 40 percent excise tax on the value of employer-sponsored health insurance above $10,200 per year for individuals and $27,500 for families. Effectively, it caps the exemption of employer-sponsored health insurance from income taxation.
Because this exemption applies to employer-sponsored insurance but not individual coverage or out-of-pocket spending, it encourages group plans over consumer control. It should not be seen as sacred. However, the cap imposed by the Cadillac tax will become increasingly tight over time, which risks pushing Americans into public entitlements rather than empowering them as consumers. Policymakers should keep the Cadillac tax from biting too deeply — but a better way to end the tax bias toward employer-based plans would be to extend the tax exemption to health care that individuals purchase by themselves.
