The “Cadillac Tax”: Driving Firms to Change Their Plans?
Abstract: Since the 1940s, employers that provide health insurance for their employees can deduct the cost as a business expense, but the government does not treat the value of that coverage as taxable income. This exclusion of employer-provided health insurance from taxable income?$248 billion in 2013, according to the Congressional Budget Office?is a huge subsidy for health spending. Many economists cite the distortionary effects of this tax subsidy as an important reason for why U.S. health care spending accounts for such a large share of the economy and why spending historically has grown so rapidly. In this blog post, we focus on a provision of the Affordable Care Act (ACA) that is intended to chip away at this tax subsidy, the colloquially labelled ?Cadillac Tax? on the priciest employer-provided health insurance plans.
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Provider: Federal Reserve Bank of New York
Part of Series: Liberty Street Economics
Publication Date: 2016-02-29