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Vote puts 'Cadillac tax' on the bubble

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The U.S. Senate's approval last week of budget legislation may set the stage for repeal of the health care reform law's fiercely opposed “Cadillac tax.”

The Senate, largely along party lines, passed so-called budget reconciliation legislation that includes a slew of Affordable Care Act repeal provisions, including elimination of penalties on employers that don't offer health coverage or require lower-income employees to pick up too big a share of the premium.

H.R. 3762, approved on a 52-47 vote, also would repeal an ACA provision that has been vehemently opposed by both employers and trade unions. The “Cadillac tax” is to impose a 40% excise tax on the portion of group health care plan premiums that exceed $10,200 for single coverage and $27,500 for family coverage starting in 2018.

The broader bill, built on a budget measure already approved by the House of Representatives, will go back to the House, which is expected to pass it and send it to President Barack Obama, who will veto it, the White House said.

While the broader measure will die because backers lack the two-thirds congressional majority needed to overturn a presidential veto, the excise tax repeal provision could return as soon as this week, attached to so-called must-pass legislation, such as bills to extend expiring Tax Code provisions or authorizing funds to prevent a government shutdown.

“This is not the last word on the Cadillac tax,” said Gretchen Young, senior vice president of health policy at the ERISA Industry Committee in Washington.

“Repeal is still a climb, but this definitely gets the effort closer to the top,” said Geoff Manville, a principal at Mercer L.L.C. in Washington.

“One way or another, this provision will be repealed,” said Steve Wojcik, vice president of public policy at the National Business Group on Health in Washington. “There is growing bipartisan support for repeal.”

Optimism that lawmakers will repeal the excise tax is being fueled by senators' overwhelming support to kill the provision.

The Senate approved adding the repeal provision to the broader budget bill on a 90-10 vote, with key Democrats such as Minority Leader Harry Reid, D-Nev., backing the plan. That vote was needed because the provision replaced a House-passed version that would repeal the provision only through 2025.

The future of the excise tax could be known as soon as this week, when lawmakers are expected to turn to tax extenders and government funding legislation that observers say are likely vehicles to which the excise tax repeal could be attached.

“The vote to repeal the 40% excise tax suggests that the odds may be in favor of a permanent fix rather than a delay. But there is still plenty of uncertainty in the road ahead,” said Amy Bergner, a managing director at PricewaterhouseCoopers L.L.P. in Washington.

“We will continue working on this very critical issue until full repeal is enacted,” said James Klein, president of the American Benefits Council in Washington.

Surveys have found the tax would have a wide­spread impact. An analysis by Towers Watson & Co. projected that 48% of employers with at least 5,000 employees that offer health plans could be hit by the excise tax in 2018, with 82% affected by 2023.

Employer opposition to the tax includes the complexity they would face in calculating the tax. So far, federal regulators have not issued any guidance on how the tax is to be calculated.

Adding fuel to employer opposition is a widespread belief that a key reason for the tax — that it would raise tens of billions of dollars that would help fund premium subsidies used by the lower-income uninsured to buy coverage in public exchanges — is simply not true. The Congressional Budget Office earlier projected that the provision would raise $87 billion in new revenue from 2018 through 2025. That estimate is based on the assumption that employers cutting benefits to stay under the tax trigger would boost employees' taxable wages.

But employers say there is no evidence to support that.

“This provision would not raise money and there is growing recognition of that among policymakers,” Mr. Wojcik said.