- Updated May 1, 2015
The bill, Middle Class Health Benefits Tax Repeal Act, would repeal the excise tax employers would have to pay on high-cost group plans.
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Employee Benefit Advisor, April 30, 2015
By Mike Nesper
There’s plenty of disagreement between Democrats and Republicans when it comes to the Affordable Care Act. However, there is one aspect that members of both parties agree on — the Cadillac tax should be repealed.
The most recent effort to repeal the tax was announced this week, and the bill is co-sponsored by three Democrats. Reps. Joe Courtney (D-Conn.), Dina Titus (D-Nev.) and Donald Norcross (D-N.J.) unveiled the Middle Class Health Benefits Tax Repeal Act, which would repeal the excise tax on high-cost group plans. Set to take effect in 2018, employers would have to pay a 40% tax on plans exceeding $27,500 for a family or $10,200 for an individual.
Bipartisan support for the repeal has been in the works for a while now, says Joel Kopperud, vice president of government affairs at the Council of Insurance Agents and Brokers. “Everyone is working together on this,” he says.
That includes employers and unions — which is fueling the bipartisan effort from Congress, says John Greene, vice president of congressional affairs at the National Association of Health Underwriters. “When you get the rare combination of union and employer discontent with something, then they tend to act,” he says.
However, the Democrats’ bill and its Republican counterpart — H.R. 879, which was introduced by Rep. Frank Guinta (R-N.H.) in February — each have partisan co-sponsors, Kopperud says. Having support from the House Ways and Means Committee and the Senate Finance Committee would boost momentum, he says.
It’s unlikely a repeal or amendment to the Cadillac tax will happen this year, Kopperud says, but he’s hoping Congress will move quickly. Employers already are — 31% said avoiding the tax influenced their plan decisions for 2014, according to a Mercer study. “It is impacting plans now,” says Kopperud. “The market is reacting today.”
Some employers are scaling back benefits and/or increasing employee contributions, says Ronnell Nolan, president of Health Agents for America, Inc. “Businesses have been pushing their workers out of high-cost plans and into ones with higher deductibles while simultaneously offering them HSAs to help them cope with the increased costs,” she says. “Many employers are also considering significantly cutting how much they subsidize the health benefits of spouses or dependents of workers.”
If large employers don’t make any changes to their offerings, one-third will be subject to the tax when it goes into effect, according to Mercer. That number increases to nearly 60% by 2022.
A major flaw is that the tax affects a disproportionate amount of Americans, Kopperud says. Health care costs depend on a variety of factors such as age, where a person lives and number of dependents.
“A Cadillac premium doesn’t mean you have the best plan, it means your premium is high,” Nolan says. “Even with the MLR included, there is nothing in this legislation that controls costs.”
Many middle-class plans will be subject to the flat tax, Kopperud says, so even if a full repeal doesn’t get passed, the threshold needs to be redefined so that only true “Cadillac plans” are taxed.
It “will have a huge negative impact on middle-income Americans,” says Charles Symington, Big “I” senior vice president of external and government affairs. “If this provision in the ACA isn’t changed, it will have a devastating snowball effect over time.”
The provision can be fixed by “tying it to an actuarial value,” Greene says. “It doesn’t discriminate on where you live.”
Another issue with the tax is its projected revenue. It won’t raise the $87 billion the Congressional Budget Office is estimating, says American Benefits Council President James Klein. Roughly a quarter is supposed to come directly from the tax, with the rest being generated by employers increasing wages to offset the reduction of benefits. “Not one employer with whom I have spoken in the past five years believes it will increase wages by the amount it will be compelled to reduce health benefits,” he says.
“If employers are right and the Congressional budget estimators are wrong, the actual revenue collected will fall far short of what is projected,” Klein says. “But if employers are wrong and the budget estimators are right, working men and women will see their tax burden go up as the value of their health coverage goes down.”
The Cadillac tax was created to reduce the cost of the ACA, Greene says. While well-intentioned, it “completely misses the mark,” he says.
The excise tax remains a primary focus for employers as they plan their health care coverage strategy for 2016 and 2017, and many will be looking for assistance from their benefit adviser to address their concerns.