Policy Brief on ACA's Cadillac Tax

A new Health Policy Brief from Health Affairs and the Robert Wood Johnson Foundation explains one of the most controversial provisions of the Affordable Care Act: the so-called Cadillac tax on generous employer-sponsored health insurance plans. Beginning in 2018 a 40 percent excise tax will be assessed on the cost of any of these plans exceeding $10,200 for individual coverage and $27,500 for family coverage. Employers, who would be responsible for paying the tax, are preparing for it by scaling back health benefit offerings or increasing workers' deductibles or co-pays to avoid paying the tax. Although critics of the tax say it unfairly reduces health benefits for subscribers to these plans, particularly those with expensive chronic illnesses, proponents maintain that when consumers pay a larger share of the costs, they will be less likely to overuse care.

Since the excise tax will not take effect until 2018, it will be some time before policy makers determine whether it will work as intended to achieve its dual goals of both raising revenue to fund health coverage expansion nationwide and lowering health care costs. Still, lawmakers from both parties and many policy makers agree that the excise tax should make employers and employees pay much closer attention to their medical spending over the long run.