One element of the Affordable Care Act (ACA) that hasposed major concerns for employers may soon cease to trouble them.There's growing support for legislation that would repeal the ACA's tax on high-cost employee health plans, dubbed the“Cadillac tax.”

Scheduled to take effect in 2018, the Cadillac tax requirescompanies to pay a 40% excise tax on health coverage that exceeds acertain level. In 2018, the levels are $10,200 a year forindividual coverage and $27,500 for family coverage.

This was designed to be one of the ACA's main means ofcontaining healthcare costs. It is also expected to raise asignificant amount of revenue to offset some of the costsassociated with healthcare reform. The issue of replacing the lostrevenue is the main barrier to a repeal.

The effort to eliminate the tax has broad-based support, notonly from businesses, but also from unions and local governmentsand among both Republican and Democratic legislators. Politicianscalling for a repeal range from presidential contender HillaryClinton to House Ways and Means Committee Chairman Paul Ryan(R-Wisc.).

Four measures to eliminate the tax have been introduced inCongress: two in the House, one introduced by Republican Rep. Frank Guinta of New Hampshireand the other by Democratic Rep. Joe Courtney of Connecticut; andtwo in the Senate, one introduced by Republican Sen. Dean Heller of Nevada andDemocratic Sen. Martin Heinrich of New Mexico, and the other by Democratic Sen. Sherrod Brown of Ohio.

Steve Wojcik, vice president for public policy at the NationalBusiness Group on Health, which represents employers on healthbenefits issues, said there's “momentum” behind the effort torepeal the tax.

“Four bills, in both the Senate and House, on both sides of theaisle, is positive,” he said. “There's going to be at leastawareness that this is an issue, and hopefully some action in2016.”

Jim Klein, president of the American Benefits Council, whichrepresents big companies on benefits issues, noted that about 250members of the House have signed on as co-sponsors of one of thetwo House bills.

“We now have over a majority of House members who haveco-sponsored a bill to repeal” the Cadillac tax, Klein said. “Weare very heartened by the fact that this issue of repeal does enjoybroad bipartisan support in both the House and Senate.”

“There seems to be little standing in the way of repealing theCadillac tax but how it will be paid for,” said Allison Klausner,principal in the compliance consulting center of Buck Consultantsat Xerox. “Paying for it is the area where there is somecontroversy as to how much the tax would have brought in andtherefore how much will have be raised from other sources to offsetthat.”

Cadillac Tax Leaves RevenueHole

Repealing the tax results in a big loss of revenue, at leasttheoretically: The Congressional Budget Office (CBO) projected thatthe tax will raise $87 billion over 10 years.

None of the bills before Congress propose a way of replacingthat revenue if the tax is repealed, although Sen. Brown's measureincludes a “sense of the Senate” resolution that Congress shouldoffset the lost revenue.

We are very heartened
by the fact that this issue
of repeal does enjoy
broad bipartisan support
in both the House and Senate.

—Jim Klein, American BenefitsCouncil

But organizations representing employers are questioning the $87billion estimate. Klein cited “a great deal of skepticism that therevenue number associated with this provision is accurate.”

The $87 billion estimate includes not only revenue from the taxitself but increased income tax revenue because the CBO assumesthat as companies cut back on health benefits to avoid the tax,they will increase workers' wages to offset those reductions,boosting the income tax that workers owe.

Wojcik said that all the employers he talks to say they willalter their health benefits rather than pay the tax, casting intodoubt the billions the CBO is expecting from that source. And hequestioned the extent to which employers will raise wages in thecurrent economy, even if they do cut back on healthcarebenefits.

Revenue “is definitely an impediment to moving forward to repealthat Republicans and Democrats would want to address,” Klein said.“Ultimately, if it's going to move forward, Congress will have tomake a determination whether it is going to be fully or partiallypaid for, and if so how that would be done.”

'Already Having anImpact'

In the past couple of years, companies began making changes tothe health benefits they offer, to reduce their costs inanticipation of the Cadillac tax.

“Employers are having to change their plans now in order to beon a trajectory to delay when they have to pay the tax,” Kleinsaid. “It's already having an impact even though it hasn't goneinto effect.”

Despite companies' efforts to contain the cost of theirhealthcare benefits, a Kaiser Family Foundation study suggests thatup to 26% of employers could face paying the tax on at least onehealth plan in 2018, and that portion could rise to 30% in 2023 and42% in 2028. A separate National Business Group on Health survey oflarge employers found that 48% expected one of their health planswould be subject to the tax in 2018 unless they made changes.

“Right now there's a big wave
trying to repeal the Cadillac
tax. But we still have
to address the revenue issue.

–Allison Klausner, BuckConsultants at Xerox

Klausner doesn't expect legislation that repeals the Cadillactax to pass this year, but she said that, in the meantime,companies are pushing for modifications to rules on how toimplement the tax that would exempt certain components of healthplans—such health savings accounts (HSAs), flexible spendingaccounts, and on-site health clinics—from being included in thecalculation of the value of health benefits for the excise tax.

She noted that dental and vision plans can be structured so thatthey are separate from healthcare benefits. “We would want HSAs andflexible spending accounts and on-site clinics to be on that sideof the ledger in determining whether the high-cost plan tax istriggered.”

In the meantime, employers should “continue to recognize whatthe law is today and continue building those strategies to avoidthat excise tax,” Klausner said.

“Right now there's a big wave trying to repeal the Cadillactax,” she said. “But we still have to address the revenueissue.”