The Cadillac tax — a 40 percent excise tax on the health benefits companies provide their workers above a certain threshold — has certainly been one of the most interesting components of the Patient Protection and Affordable Care Act, despite the fact that it hasn't yet gone into effect.
The tax applies to benefits worth more than $10,200 for individuals and $27,500 for families beginning in 2018. Now as 2018 nears and as employers take steps to avoid the tax, repeal cries become louder and the PPACA provision is under more scrutiny than ever before. Here are five signs that the Cadillac tax may never be implemented.
1. Public opinion
The Cadillac tax has officially become the new PPACA provision that everyone loves to hate.
A survey out last month by Morning Consult found that 76 percent of Americans are concerned about the Cadillac tax, saying they’d like to see the provision be either repealed or delayed. Similarly, a poll from the Kaiser Family Foundation found a similar statistic. But that poll found that it’s easier to sway public opinion against the tax than to get them to support it.
After hearing positive effects of the tax — that it “could help lower health care costs” — opposition dropped to 55 percent. But after hearing negative facts, like how some people would need to pay more out of pocket, opposition rose to 75 percent.
2. Employer concern
This one is big: The Cadillac tax does not have the support from the people it most directly affects.
A mix of employers, business groups and labor unions all have spoken out against the tax, fighting for the PPACA provision to be killed. They argue that the Cadillac tax forces them to reduce benefits for workers and miss out on attracting and retaining good employees. While businesses don’t want to pay more taxes, unions worry that such a policy will discourage employers from negotiating generous health benefits for workers.
The impact felt by employers will be widespread: The Kaiser Family Foundation and Aon Hewitt estimates that one in four employees will be affected by the tax. Mercer is more aggressive, suggesting that, over time, the number of employers affected could be 60 percent or more.
Additionally, the National Association of Health Underwriters (NAHU), one of many industry groups opposing the tax, said repealing the tax would “protect employer-sponsored health coverage.”
Photo: Rep. Nancy Pelosi, D-Calif, center. Associated Press/file photo.
3. Bipartisanship support of repeal
It wasn’t shocking that most Republicans weren’t in favor of PPACA’s excise tax. But it was a little shocking when key Democrats, including Sen. Chris Murphy of Connecticut, head of the Senate Patient Protection and Affordable Care Act Works campaign, also came out against it. Though PPACA has divided the parties, there appears to be bipartisanship against the law’s Cadillac tax.
Bills from both parties have been introduced to repeal the tax.
Now, reports are surfacing that Senate and House minority leaders are working behind the scenes to plot the repeal of the unpopular excise tax — orchestrated by Democratic leaders.
Sen. Harry Reid (D-Nev.) and U.S. Rep. Nancy Pelosi (D-Calif.), plan to land the coupe de grace on the tax after the first of the year, according to Washington, D.C.-based news source The Hill.
The Hill reports the two leaders have been in discussions with the White House since spring over ways to repeal the tax and replace the revenue from it.
Photo: Associated Press
4. The 2016 presidential election
If killing the Cadillac tax doesn’t happen when Barack Obama is still in office, it may certainly happen after he’s out.
2016 presidential frontrunners have targeted the Cadillac tax — and not just the Republicans. Senator Bernie Sanders has opposed the tax since 2009, when he proposed an amendment to PPACA to remove it from the bill.
And, in late September, after saying she would examine her position on the Cadillac tax, Hillary Clinton came out against the Cadillac tax, calling for Congress to scrap it.
“I encourage Congress to repeal the so-called Cadillac tax,” she said in a statement. “My proposed reforms to our health care system would more than cover the cost of repealing the Cadillac tax, while also reining in skyrocketing prescription drug costs and out-of-pocket expenses for hard-working families. As president, I will continue to fight to make our health care system more value-driven and cost-efficient, and to drive down costs for patients and families.”
5. Threats to FSAs/HSAs
Not only does the tax threaten employer-sponsored health coverage, but it also threatens health savings and flexible spending accounts, money workers now sock away tax-free for medical expenses, analysis says.
Health care actuaries argue that FSAs may vanish in coming years as companies scramble to avoid the Cadillac tax. According to Kaiser Family Foundation, companies offering FSAs are far more likely to pay the Cadillac tax than those that don’t. Twenty-six percent of employers with FSAs will face the tax in 2018, Kaiser predicts, compared with just 16 percent of companies that don’t offer them.
Meanwhile, research by the American Bankers’ Association finds that nearly a quarter of existing health savings account plans would trigger the tax as it currently is written.
“We initially set out to prove that HSA plans would steer clear of the tax, but were dismayed to find some plans will be hit right away if payroll contributions are counted,” said Todd Berkley, president of HSA Consulting Services, the author of the study. “While many HSA plans will likely be a safe haven for now, like the AMT, this tax will eventually affect every plan in America, including HSA plans.”