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The “Cadillac Tax”: Driving Firms to Change Their Plans?

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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.

Suggested Citation

  • Jason Bram & Nicole Dussault & Maxim L. Pinkovskiy, 2016. "The “Cadillac Tax”: Driving Firms to Change Their Plans?," Liberty Street Economics 20160229, Federal Reserve Bank of New York.
    • Handle: RePEc:fip:fednls:87106
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    More about this item

    Keywords

    Business Survey; Affordable Care Act; Cadillac Tax;
    All these keywords.

    JEL classification:

    • R1 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - General Regional Economics
    • J00 - Labor and Demographic Economics - - General - - - General

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