A presidential candidate wants to repeal part of the Affordable Care Act. Normally this would not be news, but the candidate in question is Democratic frontrunner Hillary Clinton, and the ACA provision is the Cadillac Tax, a levy on expensive employer-sponsored health insurance plans. The tax is deeply unpopular—it has been delayed to 2018—and with Democratic members of Congress under heavy pressure from labor unions who oppose the tax, itcould be repealed altogether. While the tax is certainly a poorly-designed policy, it does have a real purpose, and lawmakers should have an alternative solution ready before they repeal it.
The Cadillac Tax seeks to address the unlimited tax deduction for employer-sponsored health insurance. Since there is no comparable deduction for insurance purchased individually, employers have a massive incentive to provide their employees with insurance rather than letting them purchase it on their own. Currently, 90 percent of privately insured individuals get coverage through their employers.
The deduction is problematic for many reasons. Most obviously, it costs $250 billion per year—a figure subsidized by poorer individuals whose employers do not offer health insurance. It also encourages employers to give workers raises in the form of more-expensive health insurance plans rather than cash wages, since wages are taxable and health insurance is not. These employer-sponsored health insurance plans reduce competition through “insurance lock:” since employed individuals are disincentivized from shopping for their own health coverage, insurance companies are less likely to maintain both low prices and high quality. If you want a better plan, you might have to leave your job.
Read the full piece at Economics21.