Tucked away within the “Bipartisan Budget Act of 2018”, which keeps our government open and operating through February 8, is a provision which delays a key portion of the Affordable Care Act (ACA) known as the “Cadillac Tax”. The term “Cadillac Tax” refers to a provision in the ACA that levies a 40% excise tax on group health care plans with annual premiums in excess of $10,200 for individual plans, or $27,500 for family plans. Originally intended to go into effect in 2018, the provision was intended to target overpriced “Extensive Coverage” plans, and reign in healthcare spending across the board. According to the Congressional Budget Office, the provision was also projected to raise an estimated $87 billion in federal revenue.
While taxing plans such as extensive union plans or plans for the very rich, while adding billions to the federal revenue and reducing our growing debt seems like a reasonable proposition, opponents of the provision warn of unintended consequences. For instance, according to a 2015 survey sponsored by the International Foundation of Employee Benefit Plans, roughly 77% of current plans provided by private sector employers, and 66% of plans provided in the private sector could trigger the tax, as currently provided. Similar studies projecting a 40% increase in costs for roughly 3 of every 4 American workers have prompted stiff opposition from national employer and union groups. Groups such as the ERISA Industry Committee and ERIC, both national, bi-partisan groups that advocate for large employers, have lobbied heavily against the provision.
Why will so many be affected by a provision that targets excessive and overpriced plans? One reason is that the provision inadvertently taps plans that are expensive due to their expansive coverage. For instance, plans for companies that employ large numbers of aging workers or workers with disabilities will be penalized for the higher premiums imposed on these groups of beneficiaries. Employers in certain states where healthcare is more expensive, such as California and Alaska, could face penalties for even the most basic of plans. In 2016 interview with Nora Kelly in The Atlantic, Kosali Simon, a health economist at Indiana University, warns that, due to rising costs in healthcare across the nation, basic plans for many more Americans could eventually trigger the tax in the years to come, ( How Many Workers Will the Cadillac Tax Hit?, The Atlantic, January 28, 2018).
There is so much at stake for so many American workers and employers that the future of the provision has become a focus for many lawmakers on both sides of the aisle. In fact, House Bill HR 173, aimed at striking down the initial provision, introduced by Representative Mike Kelly (PA) was recently voted into consideration by a 273 member majority. With so much bi-partisan support in Congress, as well as the private sector, the provision’s future seems tenuous at best. Regardless the debate seems destined to continue until the provision is defeated or becomes law in 2022.