The Republican Wrinkle in Repealing Obamacare's 'Cadillac Tax'

The Affordable Care Act's "Cadillac tax" doesn't take effect for three years, but the effort to repeal it already is in full swing. For the Democrats, the tax puts them in a bind: It's their law, but some of their biggest constituencies, such as unions, vigorously oppose the tax.

The story is supposed to be simpler for Republicans: It's a tax, created by Obamacare. That sounds ready-made for repeal. And GOP members seem eager to ax it—they just might give some in the conservative wonksphere a little heartburn if and when they do.

Here's the thing: When Republicans create their own comprehensive health reform plans, they often come up with policies that look a lot like the Cadillac tax. Obamacare outright taxes high-cost insurance plans, but conservative plans often propose making some insurance benefits above a certain threshold taxable income—which isn't all that different. Last year's proposal from GOP Sens. Richard Burr, Tom Coburn, and Orrin Hatch is just one high-profile example of that kind of policy.

"Most big Republican health care plans rely on capping the tax exclusion for employer-provided health insurance, which is effectively what the Cadillac tax does, albeit more forcefully and slightly more regressively," Loren Adler, research director for the Committee for a Responsible Federal Budget, said in an email.

That, paired with deficit concerns, is why Adler said he suspected that a number of Republicans "privately wouldn't want to or at least have strong reservations" about repealing the Cadillac tax. But the politics are so clear, even if the policy isn't, that it might not be enough to stop Congress from eventually doing it anyway.

The Cadillac tax starts in 2018 and levies a 40 percent tax on all health insurance benefits above a certain threshold ($10,200 for an individual or $27,500 for a family). It is estimated to generate about $87 billion over 10 years and in theory would drive down health care costs by urging employers to be more cost-sensitive with the benefits they offer their employees.

It is also a big shift in how the U.S. tax system treats employer-provided health insurance. Right now, benefits are untaxed. The prospects of taxing insurance benefits for the first time united the AFL-CIO and National Education Association with the U.S. Chamber of Commerce to fight the Cadillac tax.

They're making inroads. Two bills, one from each party, have been introduced in the House this year to repeal the tax. The Democratic bill has 87 sponsors, and the Republican bill has 41, putting repeal well on its way to a majority. Even if it doesn't move this year—House Ways and Means Chairman Paul Ryan's spokesperson said there was "nothing scheduled at this time, but we're well aware of the bipartisan concerns with it"—the momentum is clearly there.

Rep. Carlos Curbelo, a Florida Republican who cosponsored one of the bills, was bullish when asked if the tax would be rescinded before it took effect.

"If there's a Republican president, I think the odds are very small that this would go into effect. He or she would make it a priority," he said. "Even without a Republican president, I think there's a more than 50 percent chance that we get rid of this terrible tax."

Curbelo gave many of the same reasons that Democrats would to explain his support for repeal: There are teachers in schools in his congressional district who would effectively lose their health coverage because of the tax, he said. That certainly helps explain why its repeal has "more bipartisan support than many other single-provision repeal efforts," said Kevin Kuhlman, director of legislative affairs at the National Federation of Independent Business.

But even as business interests might be lined up against the tax and a bipartisan coalition is growing to nix it, there is an argument to be made that it actually is useful for the GOP. Avik Roy, senior fellow at the Manhattan Institute, said this year that the Cadillac tax could play an important role when Republicans are shaping their own health policy.

"You might want to replace the Cadillac tax with a more streamlined and more straight-forward structure," he said. "But from a fiscal standpoint, your ability to actually help the uninsured and do some of the other things around fiscal reform and tax reform is constrained if you turn the clock back on the Cadillac tax in terms of the revenue component of it."

But it doesn't sound as though that will give the GOP-controlled Congress much pause on repealing it.

"We've wanted to repeal it since it was passed. We're all ready," House Budget Chairman Tom Price said. "All the taxes in Obamacare are destructive, so anything we can do in the direction of repealing is a wise idea."

(Image via Christian Delbert / Shutterstock.com)