The Truth About the Cadillac Tax

The Truth About the Cadillac Tax

By Rick Fuentes

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Rick Fuentes MNA Communications Specialist

MNA Communications Specialist

There’s been a lot of scare tactics lately about the Cadillac Tax. Recently, one of the big Twin Cities hospital chains even produced a video for its employees where a cartoon employee drives her old Cadillac into a car dealer to get a newer, cheaper car. Make no mistake, however, the Cadillac Tax isn’t about to run over middle-class workers. At least not yet.

The “Cadillac Tax” or excise tax is part of the Affordable Care Act, which set a 40 percent tax on insurance plans valued over $10,200 for an individual and $27,500 for families. The purpose was to keep the lid on super-expensive plans from being offered that also drove up the cost of healthcare. After all, if these golden plans will cover everything, regardless of the cost, then why would providers have an incentive to keep costs down? In addition, the tax would raise $91 billion over 10 years, which would help pay for coverage for more people. Unfortunately though, the Cadillac Tax isn’t really a good mechanism for either of those goals.

This may be why Congress voted last year to delay implementation of the Cadillac Tax from January 1, 2018 to January 1, 2020. There’s actually bipartisan support to repeal it altogether. The tax isn’t a good idea, but nobody wants to discuss it during an election year. So they voted to delay it until after the election when they have the stomach for the debate. Oh, and it’s going to be a big debate. Everybody from labor unions to big employers is against it.

First, the Cadillac Tax really isn’t similar to a Cadillac at all. It doesn’t tax only the super-rich CEO health plans that most of us only dream about. The Kaiser Family Foundation estimates that 1 of every 4 plans will qualify in 2018, and 42 percent of all plans would have to be taxed by 2028. If almost half of workers will have their insurance taxed along with their wages, then it’s more of a Chevy tax. Also, this excise tax forces middle-class workers to pay taxes on both the employer contribution and the employee contribution. So if an employee’s coverage has a Flex Spending Account (FSA), Health Spending Account (HSA), or just cost a lot through wage deductions, those amounts are still counted toward the worth of the overall plan.

Second, the Cadillac Tax isn’t a progressive tax, which economists love to propose. Progressive taxes go up as income does. Rich people pay more, but not in this case. Because the tax goes up with employee contributions, this represents a greater share of a worker’s wages. That makes it a regressive tax or one where poorer people actually pay more of their overall income. It’s a killer pill for the middle-class. No wonder progressives like Senator Bernie Sanders (I-VT) are standing with big business conservatives like Senator John Thune (R-SD) against it.

Finally, the ACA took a big shot at trying to curb healthcare costs and missed because of bad aim. Again, the thinking was if employers give out high-cost plans to employees, then providers such as doctors and hospitals will continue to charge high dollars for services. So, if employers plans are cheaper, it will force employers to only offer workers the coverage they need—not want, which will bring doctor and hospital fees down. Trouble is, the world doesn’t work like that. Instead, cheaper plans with higher deductibles will just force the costs of healthcare on the patient rather than make providers more efficient or charge a fair price for services. Prices only go down when demand goes down. The demand for high-quality healthcare, especially preventative care for everyone, needs to go up—not down. Only access to preventative care can bring down the overall costs of healthcare cures. The Cadillac Tax will only force employers to offer cheap insurance plans, which cover very little, and employees to either avoid necessary preventative care or be prepared to foot the bill themselves. That’s not driving a Cadillac. That’s driving a used Pinto and hoping it stays on the road.

 

Sources:

International Journal Of Health Services: Planning, Administration, Evaluation [Int J Health Serv] 2016 Mar 9. Date of Electronic Publication: 2016 Mar 9.

Modern Healthcare [Mod Healthc] 2015 Oct 12; Vol. 45 (41), pp. 26.

Physician Leadership Journal [Physician Leadersh J] 2016 Jan-Feb; Vol. 3 (1), pp. 26-8.

Weiner, Lena J. “Cadillac Tax Delayed.” Health Leaders Media, March 7, 2016. http://www.healthleadersmedia.com/hr/cadillac-tax-delayed-not-dead#