Industry the June 2015 issue

When Pigs Fly

The Cadillac tax would be the first tax on employee benefits in U.S. history. Bipartisan opposition means we may not make the record books.
By Ken Crerar Posted on June 1, 2015

In Washington these days, when Democrats and Republicans agree on anything, it’s worth paying attention to. And when they agree on something related to the Affordable Care Act, well, that’s when you take to the window.

In a welcome breath of fresh air from Capitol Hill, there is strong bipartisan support to repeal the looming Cadillac tax, set to take effect in 2018 (although employers are already are starting to take action to avoid it). The tax was purportedly created to reduce the cost of the ACA by encouraging employers to offer more cost-effective plans. It does no such thing, and labor unions, business groups, organizations like ours and members of both political parties are working to dismantle it.

In a welcome breath of fresh air from Capitol Hill, there is strong bipartisan support to repeal the looming Cadillac tax.

The Cadillac tax will be a 40% levy on employer-provided health benefits that exceed certain Consumer Price Index-tied thresholds: $10,200 for individuals and $27,500 for families. So for every dollar over these amounts, the plan will be taxed 40 cents. Considering that the Cadillac provision does not take into account rising medical inflation, the math is not favorable. According to a recent Mercer study, more than 30% of employers will be hit by the tax in 2018 and almost 60% will be affected by 2022 if they do nothing to change their current plans.

For employers faced with this, the options aren’t all warm and fuzzy. You can pay the hefty tax, reduce the value and benefits you offer your employees, or terminate your employees’ medical plans altogether and encourage them to seek coverage in a public health exchange. It’s not a position any of us want to be in.

The second strike against the Cadillac tax is its regional disproportionality. Think of New York versus Nebraska.

Finally, there is the supposed $87 billion the tax would produce (and therefore an $87 billion budget hole to fill should the tax be repealed). We’re not convinced this number, conjured up by the Congressional Budget Office and projected over a decade, is anywhere near accurate. CBO assumed here that employers would increase salaries as they reduce benefits. But, as we all know from the growing income inequality debate on the political left, employers aren’t increasing salaries. Regardless, for a provision designed to promote fiscal responsibility and engage employees in sharing the cost of their healthcare, it seems that it would do more harm than good.

Big picture—the Cadillac tax is tops on our list at The Council this year. There are several pieces of legislation in motion that are aimed at either redefining the value threshold or completely repealing the tax. And despite the gross dysfunction we’re used to seeing here in Washington, I’m walking around with my glass-half-full smiling face.

There are solutions, there is momentum. Now, we just need a few flying pigs.

Ken Crerar President & CEO, The Council Read More

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