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Obama administration to propose changes to Cadillac tax

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The Obama administration's upcoming 2017 federal budget proposal will include changes to the health care reform law's so-called Cadillac tax, administration officials disclosed Wednesday.

Under the Patient Protection and Affordable Care Act, a 40% excise tax will be imposed, starting in 2020, on the portion of group health care plan premiums that exceed $10,200 for single coverage and $27,500 for family coverage.

Business groups have lobbied strongly against the excise tax, arguing, among other things, that the tax is unfair because employers in areas where health care costs are high will be more likely to trigger the tax than organizations located in parts of the United States with below-average costs.

That argument is being heard by the administration. In its upcoming 2017 federal budget, the administration will propose that in any state where the average premium for “gold” coverage on the state's individual health insurance marketplace exceeds the Cadillac-tax threshold under current law, the tax trigger would be set at the level of that average gold premium.

“This policy prevents the tax from creating unintended burdens for firms located in areas where health care is particularly expensive, while ensuring that the policy remains targeted at overly generous plans over the long term if health costs rise faster than the tax thresholds, which will rise with the overall Consumer Price Index,” Jason Furman, chairman of the administration's Council of Economic Advisers, and Matt Fiedler, the council's chief economist, wrote in an article published Wednesday in the New England Journal of Medicine.

Employer groups, while pleased that the administration now realizes that the excise tax must be changed, still say the tax should be repealed.

“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,” James Klein, president of the American Benefits Council in Washington and a member of a lobbying group — The Alliance to Fight the 40 — opposed to the tax, said in a statement Wednesday. “It also unfairly hits health plans that cover large numbers of women, older workers and families suffering catastrophic health events. In short, the Cadillac tax cannot be fixed. It must be repealed.”