The next big battle in the ongoing Affordable Care Act war is underway over the “Cadillac tax.” It’s a hefty fee to be imposed on the most generous employer-sponsored health plans and one that may affect thousands of Louisianians.
The tax could hit the employers of 5,000 or more petrochemical and refinery workers in Louisiana, said W.E. “Sonny” Sanders, subdistrict director for the United Steel workers. The union has worked hard for years to make sure its members have good insurance and not the high-deductible coverage plans that only help if a person has a catastrophic illness.
“It could affect everybody,” Sanders said.
Starting in 2018, a 40 percent tax will be levied on employer-sponsored health plans whose annual premiums are more than $10,200 for individual coverage and $27,500 for family plans.
The Cadillac tax, part of the Affordable Care Act, commonly called “Obamacare,” was designed to keep down health insurance costs. The thinking was that policies with richer benefits — low co-pays and deductibles — encourage Americans to use more health care than they need. Taxing those plans would encourage people to become better consumers of health care and employers to do a better job of tracking the use of health benefits.
Although it sounds like the tax would apply to only the privileged few, critics say most employers would be affected.
Roughly 48 percent of large employers expect at least one of their health plans will trigger the tax in 2018, if the employers don’t make any changes, according to a National Business Group on Health survey. However, those employers say by 2020, their most popular health plans will have passed the premium thresholds. The business group surveyed 140 large employers who employ more than 7.6 million people in the United States and insure more than 10 million people.
However, a Kaiser Family Foundation survey showed that in 2014, on average, employers paid $6,025 in premiums for worker-only coverage and $16,834 for family coverage. Other studies have shown many employers have taken steps to avoid the impending tax, such as shifting to high-deductible plans and increasing workers’ share of family coverage.
Supporters of the Cadillac tax say repealing it would be a significant setback in changing the health care system to stop rewarding inefficient providers and encouraging overuse.
Critics say the tax unfairly punishes average workers.
Sanders said so far the Cadillac tax hasn’t been an issue in contract negotiations, and it’s unclear whether it will become one.
Jeff Drozda, chief executive officer of the Louisiana Association of Health Plans, said it’s also unclear how many employers and health plans will be over the tax threshold.
The Internal Revenue Service has yet to issue rules, interim or otherwise, on how it will determine the value of a health plan, Drozda said. Will the formula include just the medical coverage? The employee assistance program? Onsite medical clinics?
“Those issues have not been defined yet so that’s why it’s really hard to put a number on it,” Drozda said.
Another complicating factor is the treatment of health reimbursement accounts, health savings accounts and flexible spending accounts. Pre-tax contributions from employers and employees could be included in calculating the value of the cost of coverage.
Drozda said that’s a concern, because HSAs were intended to give consumers more say, and skin in the game, when it comes to health care choices.
Another is that the premiums are linked to the Consumer Price Index, Drozda said, which means most employers will eventually see their plans overtake the tax threshold.
At present, the IRS is taking comments on the proposed rules, and the agency is expected to issue final regulations around the end of the year, Drozda said. Once those are out, it should be easier to figure out how many plans and employers will be affected.
“Right now, you just have a bunch of economists talking to each other about it because we don’t know what these definitions are,” Drozda said.
It’s also possible the tax could be repealed or replaced with an alternative, he said.
In a repeat of an earlier “Obamacare” battle, business groups and unions find themselves on the same side in the fight to repeal the tax. Health insurance benefits had not been taxed before, and companies and unions fought unsuccessfully to kill the Cadillac tax before “Obamacare” passed.
But the two groups recently launched the Alliance to Fight the Forty, a lobbying effort to repeal the tax. The push has drawn some bipartisan support.
Despite that, Sanders said there’s some question whether Congress will be able to act in time, given lawmakers’ recent inability to get anything done.
The Cadillac tax’s revenue, an estimated $87 billion from 2018-2025, also makes it harder for Congress to repeal. Policymakers expect employers to shift the money that they don’t spend on health benefits to workers’ pay, which is taxable.
Steve Littlejohn, a health care consultant and principal at Climb the Curve Communications LLC in St. Louis, said that hasn’t happened.
“Rather than raising workers’ wages, more employers are shifting to high-deductible plans,” Littlejohn said.
That’s problematic because a recent Kaiser Family Foundation report found that 35 percent of U.S. households didn’t have the wherewithal to pay their health insurance deductibles: $2,500 for individual policies and $5,000 for family coverage.
Littlejohn said instead of repealing the entire Cadillac tax, lawmakers should see that it’s only applied to “highly compensated employees. In 2015, that would be anyone earning more than $120,000.
Congress could also calculate the exemption point at some percentage of the federal poverty level, Littlejohn said.
Advocate business writer Ted Griggs and St. Louis Post-Dispatch (TNS) writer Jordan Shapiro contributed to this report.
Follow Ted Griggs on Twitter @tedgriggsbr.