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Why does the Democratic Party want the Cadillac tax abolished?

The Democratic Party platform for 2016 repudiates a major provision of Obamacare – but no one has said this out loud. In particular, the Democratic Party has now officially called for abolition of the “Cadillac tax,” the Obamacare levy designed to control health care costs by taxing expensive employer health plans.

Tucked away on page 35 of the Democratic platform is this enigmatic sentence: “We will repeal the excise tax on high-cost health insurance and find revenue to offset it because we need to contain the long-term growth of health care costs, but should not risk passing on too much of the burden to workers.”

Even by the problematic standards of current political rhetoric, this statement is equivocal. This sentence avoids the popular term for the levy imposed by Internal Revenue Code 4980I, the excise tax on “Cadillac” health plans. This sentence does not disclose that President Obama advocated the Cadillac tax “on high-cost health insurance” as an important provision to control health care costs. This sentence promises to replace the revenue to be raised by repeal of the tax without specifying how that replacement will happen. This sentence pays nominal obeisance to the need to control health care costs even as it calls for repeal of the provision of Obamacare most directly designed to control such costs.

The only unambiguous thought expressed in this sentence is that the Cadillac tax on high cost health plans must go.

Since the Republican Party opposed the tax all along (and managed to delay implementation of the tax until 2020), the Democratic platform makes clear that there is now a bi-partisan consensus to abolish the Cadillac tax.

What neither party wants to admit is the larger implication of their opposition to the Cadillac tax: Neither party is willing to adopt serious, practical measures to confront the problem of our nation’s continually rising health care costs.

The background to the Cadillac tax is now well-known. Section 106 of the Internal Revenue Code excludes from employees’ gross incomes the value of their employer-provided health care insurance. Section 106 was adopted in an earlier age, before health care costs became a major national problem.

 What neither party wants to admit is the larger implication of their opposition to the Cadillac tax.

Conservative and liberal commentators alike agree that Section 106 stimulates health care outlays by sheltering employees from the costs of their employer-provided health care coverage. These commentators generally acknowledge that the correct solution is to repeal Section 106, so that employees will report as income the health care premiums paid by their respective employers. This would sensitize employees to the costs of employer-provided health care coverage and thus force employees and employers to confront and control those costs.

Repealing or limiting Section 106 is a political nonstarter, the classic case of good policy which no elected official is willing to embrace. The Cadillac tax was adopted as an attenuated alternative to the repeal of Section 106. The tax (now delayed until 2020) will be triggered when an employer-provided health care plan costs more than $10,200 annually for individual coverage and $27,500 annually for family coverage.

The theory behind this tax is that employers will seek to avoid it by reducing their health care outlays below the levels triggering the tax.

The underlying political reality is that in theory most of us nominally favor reducing health care outlays, but few of us are willing to make the sacrifices necessary to do this. Reducing health care costs entails depriving someone of medical services they would otherwise receive or decreasing the compensation of medical care providers for the services they perform. Few politicians are willing to do undertake such unpleasant tasks.

Hence, our elected officials proclaim in the abstract their concern about health care costs but are unwilling to take practical steps to control those costs.

Given the bi-partisan opposition to the Cadillac tax as expressed in the Democratic Party platform, the tax will not go into effect. If our elected officials lack the courage to implement this modest measure to control health care costs, there is little prospect of more serious measures being adopted.

Featured image credit: medical appointment doctor by DarkoStojanovic. Public domain via Pixabay.

Recent Comments

  1. […] take, but it turns out that I was completely wrong in this case. Read Edwar Zelinsky’s explanation in the OUP […]

  2. Larry Gagnon

    This bi-partisan opposition to the Cadillac Tax is completely parallel to the reluctance by either party to reduce the federal budget.

  3. […] Why does the Democratic Party want the Cadillac tax abolished? | OUPblog […]

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