October 18, 2015

Sign Petition Urging Congress To Repeal The Costly Employee Benefits Tax

The U.S. Congress could consider legislation this fall to repeal the Affordable Care Act employee benefits tax, often referred to as the “Cadillac tax.” MSCI opposes the tax and encourages its members to sign a new petition offered by the U.S. Chamber of Commerce that urges Congress to vote to repeal it. 

As a reminder, starting in 2018, employers will have to pay a 40 percent excise tax on the employee health insurance benefits they pay that exceed $10,200 for individuals and $27,500 for families. The tax increase is expected to bring in $87 billion in revenues to the federal government. 

Last spring, the National Association of Manufacturers (NAM) explored the potential effects of this tax on both employers and employees. According to NAM, nearly 50 percent of all U.S. employers will have to pay this tax within three years of its implementation. The costs of this tax, NAM said, will mean employers are either forced to reduce existing healthcare benefits, scale back hiring or pay raises or cut back other employee benefits or business investment. 

It is also possible this tax could affect employees with the greatest need for healthcare benefits as well. In a 2013 article, the journal Health Affairs said the high cost of these plans “is not always or fully explained by their unusually generous level of health benefits.” Instead, the high cost is due to employees’ own need for the more generous benefits. Health Affairs said, “Other major reasons for their high costs include the health status, age, and gender of the workforce covered by the plan as well as enrollees’ work industry or the geography (higher medical costs in some regions versus others) represented.” The law is supposed to account for these more generous benefits, but since regulatory guidance has not yet been written, it’s unclear how the Internal Revenue Service will account for it. 

Jonathan Gruber, who helped write the Affordable Care Act, has said the employee benefits’ tax might eventually keep employers from offering health insurance benefits at all. Indeed, he said the ACA’s ultimate aim was to get rid of the tax exemption employers receive for providing health care benefits. According to CNN, “Gruber said the only way those pushing for Obamacare could get rid of the tax subsidy for employer provider health insurance was to tax the more generous, or Cadillac, plans – ‘mislabeling it, calling it a tax on insurance plans rather than a tax on people when we all know it's a tax on people who hold those insurance plans.” Even though employers will pay the tax, Gruber said it is “a tax on people who hold those [generous] insurance plans.” 

According to a new study, it appears the tax is already affecting employers’ decisions about the health care they provide employees. In The Wall Street Journal last week American Health Policy Institute President Tevi Troy wrote, “Almost 90 percent of large employers surveyed by AHPI reported taking steps to prevent their company from having a plan that triggers the excise tax in 2018.” 

Employers and employees should also be aware that the tax does not apply to health insurance premiums alone. As Politico pointed out, “It also applies to health savings and flexible spending accounts, including money workers now sock away tax-free for medical expenses,” supplemental insurance plans and, possibly, on-site medical clinics that companies provide for their employees. 

According to an August poll of registered voters, 34 percent of Americans want Congress to repeal the Affordable Care Act tax on high-end insurance plans offered by employers (so-called “Cadillac” plans). Another 31 percent of registered voters said they wanted the tax changed in some way. Only 15 percent of poll respondents said they support the tax.