September 20, 2016
In a rare moment of bipartisan collaboration, Republicans and Democrats agreed last year to suspend the implementation of the controversial “Cadillac tax” on the most expensive health insurance plans for two years.
Intended to go into effect in 2018, the tax will not be implemented until 2020, assuming Congress does not suspend it again or move to permanently kill it.
The 40 percent excise tax on health plans worth more than $10,200 for single coverage or $27,500 for family coverage was touted by many economists as a way to encourage companies to cut back on health expenses and thereby slow down the inflation of national health costs. Policymakers have long argued that exempting employee health benefits from payroll taxes encourages businesses to shift much of their compensation from wages to benefits, which has driven up health costs.
Of course, taxing something that was previously untaxed is not a political winner. Businesses objected, as did advocates for workers, including unions that saw generous health benefits as a sacred accomplishment produced over decades of tough negotiations with employers.
In the midst of a presidential campaign season, there were few in Washington willing to defend the Cadillac tax. The top GOP presidential candidates opposed it, as did Hillary Clinton and Bernie Sanders. As a result, President Obama opted not to mount a fight in defense of the policy.
Because there was so little support for the Cadillac tax remaining on Capitol Hill, many political observers saw the two-year suspension as all-but killing the tax for good.
And yet, many employers are still operating under the assumption that the tax will be implemented in 2020, and are planning accordingly.
A recent survey of employers by the Kaiser Family Foundation found that 64 percent of large businesses said they had conducted an analysis to determine whether their health plans were costly enough to be subject to the tax. If the tax is implemented, the threshold at which it is applicable will continuously adjust with the rate of inflation.
The survey also found that 15 percent of employers reported shifting more health costs to employees in an attempt to stay below the Cadillac tax threshold. Another 9 percent said they had switched to a cheaper health plan.
Of course, attempts to reduce health care spending can never be attributed entirely to the Cadillac tax. Rising health costs are a major problem that employers are trying to solve regardless of tax rates.