The coming battle over ‘Cadillac tax’ reform

Last December, lawmakers on both sides of the aisle came together to force change to the healthcare law–- a two-year implementation delay of the so-called Cadillac tax on health plans.

For Americans insured with a Health Savings Account-qualified plan, this was the best healthcare reform news of 2015.

{mosads}Now, with the fate of the Cadillac tax hanging in the balance, the president has proposed lowering the 40 percent tax rate in the highest cost states.

As designed, the Cadillac tax will hit seven high-cost states the hardest, including California. Accordingly, there is now strong bipartisan momentum for repeal of the tax in Congress.

Addressing the issue directly is a new bill introduced by Sen. Hatch (R-Utah), Sen. Rubio (R-Fla.) and Rep. Paulsen (R-Minn.), together with two other Senate co-sponsors, which would exempt employee contributions to their HSAs from being included in the calculation of whether the Cadillac tax applies to a given health plan.

HSAs are unlike traditional plans in several important ways.  An HSA owner has skin in the game, spending their own money first; and, accordingly, acts differently than if they were spending their employer’s money, giving them more control over their healthcare choices while incurring generally lower costs.

Americans with HSAs own the funds in their account. One glaring contradiction in the Cadillac tax is that the tax is levied on funds an employee contributes to himself. The Hatch/Rubio/Paulsen bill eliminates this problem. Lastly, one collateral benefit of switching to HSAs is that over time, HSA owners become better savers, achieve better health outcomes and come to the gates of Medicare with cash in their account, instead of empty handed like subscribers to traditional health plans.

These are policy goals worth defending.  The Cadillac tax, especially in those seven high-cost states, stands in the way.

The problems created by the Cadillac tax give both parties good reason to support the Hatch/Rubio/Paulsen Health Saving Account Act of 2016, which offers solutions through a myriad of provisions, including:

• Allowing seniors enrolled in Medicare part A to continue to contribute into their HSA;
• Allowing seniors who chose the Medicare Savings Account to contribute their own money;
• Making it easier for active military in TRICARE to choose an HSA plan;
• Allowing Indian health plans to offer HSAs;
• Forcing insurers to properly label HSA-qualified health plans as HSA-qualified, instead of the current name, high deductible health plans;
• Allowing meal-replacement plans for weight loss and control, as well as gym memberships and nutritional supplements (up to $1,000 a year) to be paid for out of your HSA;
• Eliminating the president’s tax on over the counter drugs by allowing them to be bought with HSA dollars;
• Allowing monthly fee plans paid directly to doctors to be paid for with HSA dollars.

These provisions will collectively improve and expand the ability of Americans to use their Health Savings Accounts by promoting control, choice and personal responsibility in health insurance. Both parties seek an end to the Cadillac tax; Sen. Hatch, Sen. Rubio and Rep. Paulsen see a way forward for the only health insurance product proven to reduce costs.

McKechnie is the executive director of the American Bankers Association’s HSA Council.