One feature of the Patient Protection and Affordable Care Act (PPACA) that didn’t receive much attention when the PPACA first went into effect in 2010, but that is now becoming of significant concern to most employers, unions, and employees, is the “Cadillac tax.”
The “Cadillac tax” is a 40 percent excise tax on employer-provided health insurance plan premiums that exceed $10,200 for individuals and $27,500 for families. The original idea of the tax was to act as incentive to employers to avoid high-cost plans. And, as originally designed, the tax was expected to be able to generate about $87 billion over ten years to help fund the PPACA, and also drive down the costs of health insurance by urging employers to be more cost-sensitive to the benefits that they offer to their employees.
However, according to the National Federation of Independent Business (NFIB), the “Cadillac tax” is likely to have a greater impact on small businesses and their employees than on large businesses and their employees. “Small businesses typically pay upward of 18 percent more than others for health insurance,” noted the NFIB in a May 21 press release. In addition, “The tax is indexed for general inflation, not healthcare costs, so, as health costs continue to rise, more people will be forced to pay this tax each year.”
“Large corporations have been preparing for the ‘Cadillac tax’ for years, spending considerable time and resources to help alleviate and plan for the excise tax,” said Amanda Austin, vice president of public policy for NFIB. “Small business owners do not have the time or resources to prepare for and plan around the excise tax that will begin in 2018. Yet, small business owners are the population that may be impacted the greatest by the ‘Cadillac tax,’ both from a cost and compliance perspective.”
And, recently, an even more ominous trend has been causing concern for employers of all sizes, as well as unions and employees. That concern: A typical family of four with employer-sponsored health insurance is paying significantly more these days than it did before the advent of the PPACA. In fact, the costs are rising so quickly that such basic coverage could actually trigger the “Cadillac tax” that is set to kick in 30 months from now.
This concern was “front and center” in the findings of the “2015 Milliman Medical Index,” a research report published by Milliman, an actuarial and consulting firm. In fact, the subtitle of this year’s Index report is “Will the typical American family of four be driving a ‘Cadillac plan’ by 2018?”
Among the findings of the report:
- The average cost for employer-sponsored health coverage for a family of four is expected to reach $24,671 in 2015, with the employer’s share being $14,198, and the family’s share being $10,473. The report added: “The amount will almost certainly surpass $25,000 in 2016.”
- Between 2010 and 2015, the employee’s share of the cost of coverage has increased 43 percent, while the employer’s share has increased 32 percent. The report added: “The cost for this family has nearly tripled since Milliman began tracking the information in 2001.”
- These rapidly-increasing costs could soon move the “family of four’s” insurance package into “Cadillac tax” category. The report also added: “A family of four is likely to reach the ‘Cadillac tax’ much sooner if the plan is provided by a smaller employer, and if trends exceed recent levels.”
“For the last several years, we’ve noted that the Milliman Medical Index was only indirectly affected by the Affordable Care Act, since the employer-sponsored insurance market was not a focus of early reforms,” said Chris Girod, a coauthor of the Index. “But now we have the prospect that this family’s health plan, which, in terms of actuarial value, is a ‘gold’ plan, may trigger the ‘Cadillac tax’ that goes into effect on high-cost plans in 2018.”
Such possibilities are now beginning to create alarm in virtually all sectors. A May 15 letter to the Internal Revenue Service, sent by 23 very diverse organizations, including American Benefits Council, Associated General Contractors, National Association of Health Underwriters, National Retail Federation, Retail Industry Leaders Association, and Society of American Florists, noted that, “As imposed by the Affordable Care Act, this tax will jeopardize the health care coverage of more than 151 million Americans who rely on the employer-based health care system.” The letter added, “In 2010, the tax was included in the ACA to address what was perceived at the time to be over-consumption of health care and to help finance other provisions of the law. It was initially thought that the tax would impact only a few select health plans. In reality, however, this tax will lead to a reduction in employer-sponsored coverage and an increase in employee cost-sharing, the exact opposite of the goals of expanding coverage and lowering costs.”
Similar sentiment for the repeal of the “Cadillac tax” is now gaining support in Congress. Recently, legislators in the House of Representatives have introduced two bills designed to repeal the “Cadillac tax,” and, interestingly, the bills are receiving bipartisan support. One bill (with 41 sponsors) was introduced by Republicans; the other (with 87 sponsors) was introduced by Democrats. While the majority of Republicans have always wanted to repeal the PPACA as a whole, Democrats are supporting repeal of the “Cadillac tax” in specific as a result of hearing from their constituents, especially large unions. According to a May 19 article in National Journal, “The prospects of taxing insurance benefits for the first time united the AFL-CIO and the National Education Association with the U.S. Chamber of Commerce to fight the ‘Cadillac tax.’”