by Mitch Kokai
Senior Political Analyst, John Locke Foundation
In apparent recognition of the distinct unpopularity of the Affordable Care Act’s Cadillac tax—an excise tax on high-value, employer-provided health benefits—more than 100 economists have signed a letter defending it. As the Washington Post headline about the letter read: “101 Economists Just Signed a Love Letter to the Obamacare Provision Everyone Else Hates.”
As of 2018, the excise will impose a 40% levy on employer-sponsored health plans whose value exceeds $12,500 for an individual and $27,500 for a family. The definition of value includes all benefits, such as wellness plans or employer contributions to flexible spending accounts, and the tax is intended to get employers to reduce the benefits these high-cost plans confer (and perhaps even to encourage employers to stop providing health care to employees so they migrate toward the ACA exchanges). Some 175 million Americans are enrolled in employer-sponsored health plans, and the tax will affect increasing numbers of plan holders. This is why the tax is so widely disliked, even before anyone is directly affected by it.
The Cadillac tax is so disliked that politicians and interest groups on both sides of the aisle want to get rid of it. There are few health-care issues that unite Hillary Clinton and Bernie Sanders with congressional Republicans, or unite unions with business, but opposition to the excise tax is one. Mrs. Clinton and Mr. Sanders have declared their opposition to the tax, while multiple congressional bills would eliminate it.
The reason the tax has so many opponents is its impact on American workers. It is going to force employers, who understandably do not want to pay the steep 40% levy, to reduce the benefits they offer in order to bring the costs of their plans below the ACA’s value threshold.
Worse, because the thresholds at which the tax kicks in for individuals and families are indexed to overall inflation and not to faster-rising health-care costs, the tax will have a creeping impact on employees. Like the dreaded Alternative Minimum Tax, which was designed to hit fewer than 155 wealthy Americans in 1969 but now impacts 4.2 million households with incomes of $83,400 or more, the Cadillac tax will pull more and more Americans into its net.
According to a new study by the American Health Policy Institute, the excise tax is already forcing American employers to revisit the health care they provide to employees. Almost 90% of large employers surveyed by AHPI reported taking steps to prevent their company from having a plan that triggers the excise tax in 2018.