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July 20, 2015

MSCI Will Work To End “Cadillac Tax” – Learn How It Will Affect You

A looming tax increase that was passed as part of the 2010 health care reform bill will have a deep and growing impact on the U.S. manufacturing industry and its workers beginning in 2018. 

Under the 2010 Affordable Care Act, U.S. employers will pay a 40 percent excise tax on health insurance plans offered to employees that cost more than $10,200 annually for an individual and $27,500 annually for a family. As the National Association of Manufacturers explains here, while the tax will not hit most of the U.S. workforce immediately, it eventually will impact more and more businesses because it is indexed to general price inflation, not medial inflation, which historically has increased more rapidly. According to one estimate, that calculation means the tax could hit up to 60 percent of U.S. employers by 2022, just four years after it takes effect. 

While the tax will be levied on insurers and self-insured employees, it will impact U.S. workers because, in order to avoid paying the tax, employers will likely begin offering less generous health insurance plans. (It is for this reason that most labor unions oppose and want to repeal this tax.) Alternatively, the National Association of Health Underwriters estimates 12 million employees at large companies could pay an average $1,000 in additional income and payroll taxes due to the tax. 

In all, the tax is expected to generate $86 billion in revenue over ten years. 

According to Politico’s “Morning Tax,” Democratic presidential candidate Hillary Clinton has signaled she might be open to repealing this harmful tax, which, again, is also forcefully opposed by the nation’s top labor unions. However, one Democratic political analyst told Politico that if Clinton is elected president it would be more likely that she would propose partial repeal. Strategist Guy Molyneaux said, “I would be surprised to see her call for eliminating the tax, since it would open her to attacks for undermining the progress made on containing health costs … But I could certainly see her calling for changes that would ease the impact on union plans.” 

One thing is certain: this issue will be one of the key health care and tax policies discussed in the 2016 congressional and presidential election. To help advance the cause for total repeal of the tax, MSCI is currently exploring partnerships with other organizations that are fighting for repeal. For example, according to The Hill, a group of labor unions has joined with health insurance providers to argue for getting rid of the levy. MSCI will continue to update its members on these activities through Connecting the Dots – stay tuned!