By JANET TRAUTWEIN
National Association Of Health Underwriters
Dozens of lawmakers recently took their seats in a new Congress. At the top of their legislative agenda this year should be a measure that commands bipartisan support – repeal of the Affordable Care Act’s Cadillac Tax on high-cost health plans.
It was supposed to go into effect this year. But in 2015, President Obama and Congress agreed to push the start date to 2020. This past January, President Trump signed a bill into law putting the tax on hiatus again, until 2022.
This time around, Congress should not just delay the tax, but repeal it.
For decades, employer-sponsored health insurance has been free from income tax – a benefit that helps organizations attract and retain talent. The Cadillac Tax changes that by limiting the amount of insurance employees can receive tax-free to $11,100 for an individual policy or $29,750 for a family plan. Any amount beyond those caps is subject to the 40 percent tax.
The Affordable Care Act’s authors justified the levy as a way to discourage employers from offering gold-plated policies, which supposedly lead patients to consume more healthcare than they otherwise would. But the Cadillac Tax is really a mechanism to undermine employer-sponsored health insurance, the foundation of America’s healthcare system.
To start, the Cadillac Tax would hit about 12 percent of workers with employer-sponsored insurance in 2020 if it were to go into effect. By 2025, that number would double, to about one-fourth of those who get coverage through work.
Earlier research from the Kaiser Family Foundation has estimated that more than four in 10 employers would have to pay the tax in 2028.
The Cadillac Tax ropes in an increasing number of employers over time because its definition of “high-cost” health plans is indexed to general inflation, not healthcare inflation. Healthcare prices have historically grown much faster than those across the rest of the economy.
Since 2007, healthcare prices have jumped 21.6 percent. Prices economy-wide have risen 17.3 percent. The Centers for Medicare and Medicaid Services estimate national health spending will spike 5.5 percent annually through 2026.
Consequently, employers will actually have to cut benefits year over year just to stay under the Cadillac Tax’s thresholds. Those cuts could take many forms: higher deductibles, increased cost-sharing, or narrower networks of healthcare providers. And they may come soon, as employers tend to lock their benefits plans into place as many as two years in advance.
Workers can’t afford more cuts. The average worker paid over $5,200 in healthcare costs in 2018 – an increase of 7.2 percent from the year before.
And if the Cadillac Tax stays, that number will go up. That may be a rounding error for the wealthy. But it’ll put a significant dent in the middle-class budgets. An analysis done by the City University of New York School of Public Health concluded that the tax “will disproportionately harm families with incomes between $38,550 and $100,000.”
The Cadillac Tax will make health insurance more expensive for the more than 181 million people who receive coverage through an employer. The House and Senate must act to fully repeal this tax in 2019.
Janet Trautwein is CEO of the National Association of Health Underwriters (www.nahu.org). The opinions expressed are those of the author and not necessarily those of this paper or its corporate ownership.