by Mitch Kokai
Senior Political Analyst, John Locke Foundation
Alex Adrianson documents for the Heritage Foundation’s “Insider Online” blog a key funding problem for the Affordable Care Act.
The “Cadillac tax” is set to morph into a “Chevy tax.” “Cadillac tax” is the moniker given to the Affordable Care Act’s tax on high-premium health insurance. Over time, that tax is going to hit more and more of the middle class in one way or another. As Chris Jacobs puts it: “To make the underlying law fiscally sustainable, the tax may end up increasing at a rate that becomes politically unsustainable.” [“Washington Wire,” Wall Street Journal, February 3] The CBO explained:
The ACA specifies that if total exchange subsidies exceed a certain threshold in any year after 2017—a condition that CBO and [Joint Committee on Taxation] expect may be satisfied in some years—people will be required to pay a larger share of premiums in the following year than would otherwise be the case, thus restraining the amount that the federal government pays in subsidies. In addition, CBO and JCT expect that premiums for health insurance will tend to increase more rapidly than the threshold for determining liability for the high-premium excise tax, so the tax will affect an increasing share of coverage offered through employers and thus generate rising revenues. In response, many employers are expected to avoid the tax by holding premiums below the threshold, but the resulting shift in compensation from nontaxable insurance benefits to tax- able wages and salaries would subject an increasing share of employees’ compensation to taxes. Those trends in exchange subsidies and in revenues related to the high- premium excise tax will continue beyond 2025, CBO and JCT anticipate, causing the net costs of the ACA’s coverage provisions to decline in subsequent years. [“The Budget and Economic Outlook: 2015 to 2025,” Congressional Budget Office, January 2015, p. 117]
At that’s just one of a number of uncertain financing provisions in the bill. Others include cuts to Medicare providers (which were then double-counted as increasing the solvency of Medicare), the already discarded attempt to prefinance a long-term care program and then count those receipts against ACA outlays, two new Medicare taxes that are not indexed to inflation, and the exemption-riddled individual mandate tax.