Liberty Street Economics – Jason Bram, Nicole Dussault and Maxim Pinkovskiy: “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. Drawing on results from business surveys conducted in August 2015 by the Federal Reserve Bank of New York, as well as the more comprehensive 2015 Employer Health Benefits Survey published by the Kaiser Family Foundation, we explore the possible impact of this provision on businesses in the Second District and how individual firms might respond.”