Obamacare's Cadillac Tax Will Not Survive

The Cadillac tax may not be quite dead yet. But at best, it certainly stuns easily. I’m not optimistic.

The Cadillac tax, you may remember, was an excise tax on especially expensive employer-sponsored health insurance plans. It was a substitute for two things the administration wanted to do, but didn’t quite dare: get rid of the tax deduction for employer-sponsored insurance, and institute serious cost control measures. Doing either of those things would have made an already-embattled Obamacare bill impossible to pass into law.

So instead, the administration came up with a Rube Goldberg mechanism that sort of capped the tax deduction, and sort of encouraged private insurers to control costs — and, not incidentally, raised a substantial amount of money, helping the administration toward the politically necessary claim that the law would reduce the deficit.

There was one small problem with this, as many of us noted at the time: The Cadillac tax was apt to be politically unpopular. It was particularly apt to be unpopular with politically active groups, such as unions. It therefore seemed somewhat unlikely to us that the Cadillac tax would ever be actually allowed to take effect. Don’t be alarmist, we were told; the administration knows that all the parts of this law hang together. It will not start disassembling the complicated structure it spent so much time and political capital putting together.

And to be sure, the administration has not capitulated in the face of considerable political pressure. Well, it has not capitulated much. The White House did agree to push the implementation date back to 2020 from 2018. That Obamacare’s principle architects want to be safely away from 1600 Pennsylvania Avenue before the Cadillac tax is implemented gives you a pretty good idea of how politically viable it is.