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Cadillac plan tax math may shape ACA attack

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A benefits compliance specialist says he thinks the current Affordable Care Act battle could threaten the federal income tax exclusion for employer-sponsored group health premiums.

Edward Fensholt, a lawyer who tracks the ACA for Kansas City, Missouri-based Lockton Companies, said today in an email interview that the group health tax exclusion is in trouble because cutting it would be a way to free up the federal budget power to pay for repealing ACA revenue-raising provisions.

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Many Republicans have said they want to repeal all of the ACA, including the ACA revenue-raisers. President Trump and many other Republicans have said they want to replace the ACA with another program that will keep ACA changes from leaving large numbers of people without health coverage.

The most endangered ACA revenue-raiser is the Cadillac plan tax provision. The provision, which has no connection with automobiles, could eventually impose a 40 percent tax on issuers of high-cost employer-sponsored health coverage. Democrats crossed the aisle to help Republicans postpone the effective date of the Cadillac plan tax in a 2015 funding bill. But under current law, the tax would take effect in 2020.

“What we hear most often is that the exclusion needs to be at least partially rolled back to pay for the lost revenue when the ACA’s Cadillac [plan] tax is repealed,” Fensholt said.

The current Congressional Budget Office analysis shows that Congress needs to come up with $87 billion over 10 years to offset the cost of repealing the Cadillac plan tax, Fensholt said.

But the CBO might have exaggerated how much revenue the tax would actually raise, by failing to include the full effects of how much employers would change their behavior to avoid the tax, Fensholt said.

“So, we think the GOP will want to have the Cadillac [plan] tax repeal re-scored by the CBO, perhaps even with direction to change the assumption about how employers will respond,” Fensholt said. “Where the GOP takes the [group health] tax exclusion from there is anyone’s guess.”


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