It is unfortunate that the 40% tax on health plans created by Obamacare has been labeled a “Cadillac” tax because the perception of luxury and excess is misleading and inaccurate.
The idea that such plans encourage overuse of health care is ludicrous, especially when you consider the cost of such plans as defined in the Law includes employee contributions to spending accounts and health savings accounts (HSA); programs designed to do exactly the opposite of encouraging spending.
Just think, the idea of lower out-of-pocket expenses encouraging a disregard for costs from the folks who want “free” college.
The Times says: “Employers can avoid the tax by reducing the benefits they offer (the original purpose of the tax) or by shifting more costs to employees.” Or? Here’s a clue, reducing benefits and shifting costs to employees are one and the same, it’s not a matter of or. The number of employers affected would be relatively small says the Times; the current estimate is about 48% initially and growing from there since the dollar cap is not geared to health care inflation
The fact is avoiding this tax as most employers will, means direct cost-shifting to workers. And yes, the Times is right, modest and lower-income workers will be hurt most as they are now.
Will the experts please give us the details of what they describe as a gold-plated benefit plans.
The idea that employers will increase pay when they reduce benefits is a dream of what must be naive left of center economists, especially considering that many of these are Union plans and public employee plans, which by the way means taxpayers are getting a double whammy 😛
Keep the Tax on High-End Health Plans (New York Times Editorial Board, August 12, 2015)
Congress is under pressure to repeal an impending tax on the so-called Cadillac health plans offered by many employers. Scores of legislators from each party have endorsed separate bills to repeal it, and candidates for office, pressed by lobbyists from labor unions, business groups and insurers, may join the call for repeal. The tax should probably be adjusted by Congress to eliminate inequities, but outright repeal would be a mistake that would undermine the viability of the Affordable Care Act.
Cadillac plans, which often offer more generous benefits and lower costs to the employee, are substantially more expensive than the average employer plan. Many experts believe they encourage wasteful spending in the health care system. To eliminate most of these pricey plans, a 40 percent excise tax will be assessed, beginning in 2018, on any annual premiums that exceed $10,200 for individual coverage and $27,500 for family coverage. The tax will be paid by employers or, in some cases, insurers hired by the employers. If the premium for a family plan is $30,000, for example, the tax would be 40 percent of $2,500, or $1,000.
Employers can avoid the tax by reducing the benefits they offer (the original purpose of the tax) or by shifting more costs to employees. The number of employers affected would be relatively small at the start but would grow over time as more employer-sponsored plans exceed the premium threshold that triggers the tax.
There are good reasons to retain the tax. It makes a start, albeit small, toward reducing the cost of health care by discouraging excessive spending. It would generate some $87 billion over the next decade to finance more coverage for the uninsured, a sum that would either have to be replaced with other revenues or added to the deficit.
In addition, a vast majority of policyholders won’t be hurt because the average family plan currently costs about $17,000, well below the tax threshold. The Congressional Budget Office recently lowered its estimate for projected growth in premiums for private health insurance, making it even less likely that premiums will exceed the tax thresholds anytime soon.
Still, the tax could end up unfairly penalizing some employers for factors beyond their control, and lead them to impose harmful cuts on their workers. Even employers that do not provide gold-plated benefits face very high premiums if they are in places where medical costs are high or if their work force is disproportionately old or chronically ill. Those inequities can be addressed by adjusting the tax to take account of obvious disparities in work-force composition or local medical costs.
One unanswered question is whether employers that cut back their health benefits to avoid the tax will pass the savings on to workers in the form of higher wages. Many economists think they will, but so far there is little evidence of that happening with businesses that have reduced benefits or increased employee contributions.
Analysts at the Commonwealth Fund, a research organization, warn that if employers require higher deductibles and co-pays, workers with modest incomes might postpone the health care they need, which could lead to more spending down the road. Congress should not repeal the tax, but it should find smart ways to adjust it.