Obama will release his 2017 budget proposal Tuesday. (TS/Dorling Kindersley)

(Bloomberg) — To win over allies and preserve a key element of the Patient Protection and Affordable Care Act (PPACA), President Barack Obama will propose reducing the impact of the unpopular “Cadillac plan tax,” or “Cadillac tax,” on high-cost health insurance plans in the budget he releases next week.

So far, big businesses and unions that opposed the tax from the start aren’t convinced. Groups of retailers and large employers, as well as the Alliance to Fight the 40, a broad-based coalition that includes employers, insurers and unions, all say they’ll keep fighting for repeal.

“The ‘Cadillac tax’ cannot be fixed,” James Klein, president of the American Benefits Council, which is part of the Alliance to Fight 40, said in a statement. “We’re glad the Administration recognizes the ‘Cadillac tax’ is seriously flawed. But its impact in high cost areas is just one of its many problems.”

The president’s proposal would reflect regional differences in the cost of health care, reducing the tax’s bite where care is particularly expensive, Jason Furman, the White House Council of Economic Advisers chairman, wrote in the New England Journal of Medicine on Wednesday. Employers had complained that by imposing a uniform threshold across the country, the tax failed to take into account the higher cost of health insurance in some regions.

The American Federation of State, County & Municipal Employees, (AFSCME), said it still supports “nothing less than full repeal” of the tax.

“Minor tweaks are insufficient to remedy its myriad problems,” said Steven Kreisberg, director of collective bargaining at the AFSCME union.

‘Bad policy’

The National Retail Federation, a group of more than 18,000 companies that often finds itself on the opposite side of unions, is in the same corner on the tax.

“The Cadillac tax is bad policy,” Neil Trautwein, vice president of health care policy at the retail group, said by e-mail. “The answer to health care costs is with providers, not the purchasers of care or coverage.”

The National Business Group on Health (NBGH), which represents large employers, said that it appreciated Obama’s acknowledgment that the tax “has flaws and targets employees even in modest plans,” but that it still wants the levy repealed.

Katie Hill, a White House spokeswoman, had no immediate comment on the response to the tax proposal. She pointed to comments by Center on Budget and Policy Priorities (CBPP).

‘Serious consideration’

Paul Van der Water, a senior fellow at the CBPP, said the adjustments to the tax merit “serious consideration” because they help the law take into account differing costs of health care in different parts of the country.

“The tax has a strong policy rationale,” he wrote in a blog post on the group’s website. “It could slow health care cost growth by discouraging firms from buying extremely expensive health coverage that promotes excess use and inefficient delivery of health care.”

The tax was key in financing PPACA’s insurance coverage expansions, and it was intended to slow the rise of health care costs by putting pressure on employers to limit their benefits and push for lower prices from hospitals and doctors.

The year-end spending deal that Obama signed in December postponed the start of the Cadillac plan tax by two years, until 2020. The Congressional Budget Office said the delay would result in lost revenue of $17.7 billion over 10 years.

See also: Obama isn’t ‘wild about’ U.S. spending plan even as he signs

Orrin Hatch, the Utah Republican who chairs the Senate Finance Committee, also said the tax still needs to be repealed.

“Putting a band-aid on the issue, as the administration’s proposal does, won’t fix the problem,” Hatch said in an e-mailed statement Wednesday. “Instead, we need to have this flawed tax repealed in its entirety once and for all.”

‘Gold’ plans

Under PPACA, health plans pay a 40 percent excise tax on the cost of their coverage over a threshold value, currently $10,200 for individuals or $27,500 for families. Those limits are expected to adjust upward before the tax takes effect in 2020.

Obama’s budget would raise the threshold at which plans are subject to the tax in states with higher health care costs. Instead of a single threshold across the country, employers could offer more generous coverage in states where “gold”-level plans offered on the PPACA’s insurance exchanges cost more than the Cadillac plan tax limits. Gold plans are the second-most generous plans available on the exchanges.

The effect would be that fewer employers would pay the tax.

The White House said that taxing the highest-value health insurance plans will encourage efficiency by hospitals, doctors and other caregivers. Employers — including labor unions that are among Democrats’ biggest supporters — have opposed the tax as unfairly singling out businesses that provide their employees with generous health benefits.

PPACA, also known as Obamacare, is one of the president’s signature achievements. Republicans in Congress have tried repeatedly to overturn it; on Monday, the House failed to override Obama’s veto of a bill intended to gut the law. By tweaking the Cadillac plan tax — one of the most unpopular parts of the law — Obama hopes to preserve a key piece of his legacy.

Congress and Obama in December also enacted moratoriums on PPACA taxes on medical devices and health insurers. The Treasury Department estimates 7 percent of people with employer-provided health insurance have plans subject to the 40 percent Cadillac tax.

Obama will release his budget proposal Tuesday.

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