Do Not Repeal ObamaCare’s Cadillac Tax

My last post examines some of the reasons why American healthcare is so much more expensive than it should be.  We can’t possibly solve the U.S. debt problem without getting the excessive cost of healthcare under control.

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One of the drivers of these enormous costs is the tax exemption for employer provided healthcare.  This uncapped tax benefit for health insurance premiums is very costly.  It drags down wages and pushes up healthcare spending by contributing to the third-party payment problem.  That is, consumers tend not to care how much things cost when someone else is paying for them.

ObamaCare’s Cadillac Tax, a 40% excise tax on high cost employer sponsored health insurance, was supposed to take effect in 2018 but has already been delayed until 2022.  It would raise $197 in revenue from 2022 – 2029.  But the true purpose of the Cadillac Tax is to address the tax code’s preference for lavish plans since premiums aren’t subject to federal income or payroll taxes.

Unfortunately the House of Representatives has now voted, by a margin of 419 – 6, to repeal the Cadillac Tax entirely.  This bill now goes to the Senate.

Instead of repealing the Cadillac Tax, Congress could exempt both employer and employee HSA (Health Savings Accounts) contributions from the calculation of the value of the plan for the purpose of enforcing the Cadillac Tax.  Exempting these contributions would give employers an incentive to offer their employees HSA-qualified plans and fund their accounts.  This would erode the third party payment problem and nudge more Americans to consume healthcare the way they consume other services.

Summary.  Healthcare costs are increasing much too rapidly and must be slowed down.  Encouraging the formation of Health Savings Accounts is one way to accomplish this urgent task through private initiative.  If the free market is unable to control the cost of healthcare, then a single payer government-run healthcare system in the U.S. is almost inevitable.

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