Decisions and Revisions Drive Cadillac Tax Debate

Last year ended with good news for employers who were concerned about the impact of the ACA’s excise tax, also called the “Cadillac tax,” which would levy a 40% tax on high-valued employee health plans starting in 2018. Instead, the tax was delayed until 2020, and hopes rose that it was on the road to repeal.
In the meantime, the Obama Administration has proposed revisions to the excise tax to address cost variations – another hopeful development, since businesses groups have been arguing that the tax unfairly hits employers in geographic areas where health care costs are high.
But, as Mercer’s Beth Umland points out, health care costs vary by market, not by state. And yet the administration’s revision proposal is state-focused, proposing that in any state where the average premium for “gold” coverage in the state’s individual health insurance marketplace exceeds the current Cadillac-tax threshold, the excise tax trigger would be set at the level of the average gold premium.
Because the premium rates on the public health exchanges are generally lower than in employer plans, there may be only a few states where the average gold plan cost is over the tax threshold. For many employers, this proposed revision to the tax may not be much help.
The administration’s economic advisors say that the revision would prevent the tax “from creating unintended burdens for firms located in areas where health care is particularly expensive,” and keep the tax targeted at “overly generous plans” in the long term. Employers groups, meanwhile, are still advocating for repeal of the tax.
James Klein, president of the American Benefits Council in Washington, said in a statement that the proposed revision addresses only one of the tax’s many problems: “It also unfairly hits health plans that cover large numbers of women, older workers and families suffering catastrophic health events.” He insists it cannot be fixed and should be repealed.
In my last post, I noted that the health benefits marketplace was entering its most dynamic phase ever, and that the Congressional Budget Office had reduced its estimate of how many people would get health insurance in 2016 through the ACA’s public exchanges. For many businesses -- including small and medium-sized ones – it may be possible to counter the Cadillac tax due to the wider choice of health plans, voluntary benefits, and decision-support tools provided by the online platforms of PRIVATE (not public) exchanges. Your comments have added to the conversation. Let’s keep up this discussion!

Julio Portalatin