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Congress Hits Brakes on ‘Cadillac’

Postponing the tax until 2020 gives Congress more time to assess its potential effect on employers and employees.

February 10, 2016
Related Topics: Health Care Costs, The Latest, Benefits
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Congress Hits Brakes on ‘Cadillac’

Just as employers were gearing up to address the looming “Cadillac” tax, Congress has pumped the brakes on it.

In a rare bipartisan effort in this Congress, the legislators in December deferred the 40 percent excise tax until 2020. And it has many employers taking their collective foot off the gas and breathing a sigh of relief, at least for now.

“A delay will give Congress and the administration more time to evaluate the impact of the tax and address the potentially negative consequences in terms of reduced benefits, job losses and declines in personal income,” said Steve Wojcik, vice president of public policy at the National Business Group on Health, in a written statement.

Originally set to take effect in 2018, the so-called Cadillac tax imposes a 40 percent tax on single coverage valued at more than $10,200 and family coverage valued at more than $27,500. Employer-sponsored insurance is currently excluded from income and payroll taxes. The tax, which is part of the Affordable Care Act, was envisioned as a way to discourage employers from offering overly expensive health care plans that depress wages and increase overall health care spending, according to Brian Blase, a senior research fellow at George Mason University.

According to a recent Kaiser Family Foundation analysis, about 1 in 4 employers are expected to offer health plans in 2018 that are expensive enough to trigger the tax. After that, the tax’s reach is expected to expand quickly because it is tied to the rate of inflation, and insurance premiums have been growing more rapidly than that rate. This means more and more health plans will be ensnared as time goes on, Wojcik said.

A recent NBGH survey of 140 large corporations found that almost 48 percent of respondents expect at least one of their benefit plans will hit the excise tax threshold in 2018 if they don’t take measures to control rising health care costs. By 2020, 72 percent expect one of their plans will trigger the tax.

As a result, many employers are offering lower-priced health plans that shift more of the rising cost of health care onto employees. Congress’ action to delay the tax calls into question whether taxing employers is the best way to control health care spending, Wojcik said.

Unions in particular have strenuously opposed the tax; they say it could lead to reductions in health benefits prized by their members.

“Increasing the worker’s pain through skimpier health plans is not the best way to target that problems,” said Tom Leibfried, a health care lobbyist for the AFL-CIO, in a written statement.

While the delay does give employers more time to adjust plans and stay under the tax, the NBGH and other organizations hope that Congress addresses the root problem of health care inflation and finds a more effective solution.

“This is really a demand-side tool to control health care spending,” Wojcik said. 

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