GOP Overhaul Would Keep Obamacare’s “Cadillac Tax,” But Delay It Until 2025

Might Republicans make job-based health insurance taxable? And how can you fight an insurance denial for lung-cancer screening? Also, can pharmacists prescribe drugs? Here are answers to some recent questions from readers.

Q: I’ve heard that Republicans plan to change the system so that I’d have to pay income taxes on my health insurance benefits. Is it true?

It’s way too soon to predict what may happen as Republicans move to overhaul the health law and several early Republican plans have included this option. But legislation unveiled Monday night by the key House Ways and Means Committee would instead keep the health law’s “Cadillac tax” on insurers and employers that provide generous coverage rather than tax the workers who receive it.

Starting in 2020, Obamacare imposes a 40 percent excise tax on employers’ plans that cost more than $10,200 for individuals and $27,500 for families. The Ways and Means Committee’s proposal would impose the tax but delay it until 2025.

The Republican proposal wouldn’t alter current federal tax provisions that exclude the amounts that workers pay for health insurance from federal income and payroll taxes. For decades, lawmakers have flirted with the idea of capping or eliminating that tax break.

A number of the recent Republican health plan proposals have taken aim at it, too. For example, the health plan that Health and Human Services Secretary Tom Price introduced when he was in Congress would have capped the amounts that could be excluded from taxes at $8,000 for single coverage and $20,000 for family coverage. The idea is also in House Speaker Paul Ryan’s Better Way plan.

Eliminating the tax exclusion and imposing the Cadillac tax are similar in some ways. “The difference is that one is paid by the employer/insurer and the [other] is paid by the employee,” said Tracy Watts, a senior partner at human resources consultant Mercer.

The tax exclusion for workers is the single-largest federal tax break, accounting for more than $250 billion annually, according to the Congressional Budget Office. Some economists and policy experts say it discourages people from paying attention to health care costs. But they’ve faced strong resistance from employers and labor unions, who argue that employers would stop providing health insurance if the tax break were trimmed or scrapped.

It’s early days yet, and what’s on the table today may be off it tomorrow. If you’re wondering how generous your own benefits are, check out Box 12 on your annual W-2 wage and tax statement. The health law required that employers include the value of workers’ health insurance coverage on the form. But remember: That figure is for your information only, you don’t owe tax on any part of it. Not yet, anyway.

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