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Employer health insurance will soon be taxed, many want to repeal it
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The Affordable Care Act is set to put a 40 percent tax on expensive health care plans offered by employers. Many politicians now want to repeal it, though many argue this "Cadillac Tax" is key for reducing the cost of health care in the U.S. - photo by Daniel Bendtsen
The IRS has excluded employer-offered health insurance from taxation for the last 60 years. That's about to change.

The Affordable Care Act set up a 40 percent tax on expensive insurance plans, and it's set to take effect in 2018. The so-called Cadillac tax is meant to discourage overpriced plans that, like the tax's namesake, look great but aren't necessary for good care.

But David Dayen of The Fiscal Times said the tax isnt likely to make health care more efficient. Businesses will cut back on expensive plans, but discouraging health care access, Dayen said, cuts against a central goal of Obamacare itself: to increase preventive care and arrest costly health problems before they metastasize.

"Instead of squeezing out wasteful spending, the Cadillac tax could eliminate useful spending that makes people healthier.

The provision taxes employer-offered insurance on every dollar that the plan goes over the limit: $10,200 a year for individuals and $27,500 a year for families. Insurers are responsible for paying the tax on fully insured plans, while the administrator of the plan either the employer or coverage provider is responsible for taxes on self-funded plans.

When Congress debated the Affordable Care Act, the Cadillac tax was seen as good way for the federal government to recoup revenue. The Congressional Budget Office expects the tax to bring in $80 billion over 10 years.

Now there is bipartisan support to repeal it. The Cadillac tax has made unlikely bedfellows of Bernie Sanders and the Chamber of Commerce.

Politically, congressional Republicans see the tax as way to show some muscle in stripping Obamacare. Democrats are also getting pressure from unions, which often offer lavish plans that would be in jeopardy from this tax.

But repealing the tax is something that former White House aides Ezekiel Emanuel and Bob Kocher urge against. The Cadillac tax, they wrote in The New York Times, will help combat the hugely regressive federal subsidy for employer-backed health insurance.

The rich receive nearly triple the financial benefits from the tax exclusion than those with lower incomes because they are taxed at a higher rate and tend to have much more expensive health insurance, Emanuel and Kocher argue. The health care tax exclusion is the single largest tax break in the United States, reducing federal revenue by more than $250 billion per year.

Some 101 economists have also co-signed a letter to Congress urging it to keep the impending tax in place.

Sarah Kliff of Vox said the opposition to the Cadillac tax is a sign its working.

She said when companies limit their coverage, co-pays go up, which discourages people from getting care for frivolous concerns. That saves the U.S. money and is exactly what the tax is supposed to do.

"The whole point of the Cadillac tax was to make health insurance plans lousier," Kliff said.