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Obama to include Cadillac tax adjustment in budget proposal

White House economists detail alterations in NEJM article

Next week, President Barack Obama will propose amending the controversial Cadillac tax on expensive private health plans in the administration's 2017 budget plan, according to a article from the New England Journal of Medicine.

Obama's budget proposal will primarily improve how the tax targets high-cost plans, write Jason Furman, Ph.D., chairman of the White House Council of Economic Advisers, and Matthew Fiedler, Ph.D., the council's chief economist. The most significant provision says that in any state where the average premium for gold-level coverage on the individual health insurance marketplace would exceed the Cadillac-tax threshold under current law, the threshold would instead be set at the level of that average gold premium.

The proposed changes will make sure that the tax cannot create unintended burdens for those companies that are located in areas of the country where healthcare tends to be expensive while also ensuring that the tax continues to focus on discouraging overly generous employer plans, they write.

Economists and health policy analysts agree that the Cadillac tax will drive employers to make their health plans more efficient, which is expected to reduce national health expenditures by more than $40 billion in 2024, with even greater savings in later years, Furman and Fiedler write. By increasing employers' incentives to negotiate for better prices and steer enrollees toward lower-priced providers, the article says, the tax will help check that market power and drive prices down.

"Cost-cutting efforts by plans directly affected by the tax may have substantial spillover benefits for the rest of the market," the authors write. "Just as Medicare payment reforms drive down costs in the private sector, private payment reform efforts appear to generate benefits for other payers."

In December, lawmakers passed an omnibus spending bill that includes a provision to delay the Cadillac tax by two years, but the Obama administration has adamantly opposed the full repeal of the Cadillac tax. Though some economists support the tax, a coaltion of industry groups has formed to oppose it, and even presidential candidate Hillary Clinton has voiced opposition to it.

To learn more:
- here is the NEJM article

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