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CBO lowers health reform 'Cadillac' tax, employer penalty estimates

CBO lowers health reform 'Cadillac' tax, employer penalty estimates

The Congressional Budget Office has nearly halved the revenue it expects the federal government to collect from employers through the health care reform law's so-called “Cadillac tax.”

Excise taxes on employers' high-premium insurance plans are expected to generate about $80 billion over the next 10 years, the CBO said Tuesday in a report updating its federal budget projections for fiscal years 2013-2023.

The revised estimate is a nearly 42% decrease from the $137 billion in excise tax revenue that the CBO projected in February.

Beginning in 2018 under the Patient Protection and Affordable Care Act, the Internal Revenue Service will impose a 40% excise tax on employer-sponsored health benefits that cost more than $10,200 for individual coverage and $27,500 for family coverage.

In its report, the CBO said it reduced its estimate on excise tax revenue after examining recent cost trends in employer-sponsored health benefits.

“As a result, we now expect fewer employment-based plans to be subject to the excise tax on high-premium insurance plans and, consequently, have reduced our estimate of revenues from that tax by $58 billion over the 10-year period,” according to the agency's report.


The CBO also lowered its projections for revenue collected through penalties included in the health care reform law's employer mandate. Under the law, employers with more than 50 full-time workers — defined as employees working 30 hours or more per week — will be required to offer qualified, affordable group health benefit plans to their employees beginning in 2014.

Failure to meet those requirements will result in a $2,000-per-employee tax penalty if an employer's health care plans are not offered to at least 95% of full-time employees and just one full-time employee uses a premium subsidy to purchase coverage offered through a state- or federally-facilitated health insurance exchange.

The CBO projects the federal government will collect about $140 billion from the employer mandate penalties for the 10-year period, down from the $150 billion it projected in February.

The agency said the revision is due mainly to refinements in the IRS' calculation of households' estimated marginal tax rates, which led to a slight increase in the number of the individuals predicted to be enrolled in an employment-based health plan.

However, the CBO also said the projected net decline in the number of lives enrolled in employer-sponsored plans largely offset those gains.

“That slight increase in projected employment-based coverage increases the estimated loss of government revenues from the exclusion from taxation of employers' payments of health insurance premiums for their employees,” the CBO said in the report.