The groups are warning that Americans are already affected by the tax in the form of higher copays and deductibles, and, if it is not repealed, it could lead to reduced healthcare coverage and other benefits.
A broad-based coalition of unions, healthcare companies, and businesses launched an effort last week to repeal the Affordable Care Act’s “Cadillac” tax.
The Alliance to Fight the 40, led by the American Benefits Council, is working to repeal the 40 percent excise tax on high-cost health plans before it takes effect in 2018. The tax was created to help pay for expanding coverage to the uninsured under the ACA and to reduce healthcare usage and costs.
Under the ACA, beginning in 2018, both fully insured and self-funded employer health plans will be assessed a nonrefundable 40 percent tax on the dollar amount of any employee premiums that exceed annual limits of $10,200 for individual coverage and $27,500 for family coverage. While standalone dental and vision plans are excluded from the cost limits that trigger the tax, the law does include several other payments made by employers and employees, such as contributions to flexible spending accounts or health savings accounts.
“This is not a ‘tomorrow is another day’ problem,” James Klein, president of the American Benefits Council, said in a statement. “Employers are reluctantly compelled, right now, to require employees to bear a larger share of escalating costs in an effort to avoid triggering the tax. Employees are already facing higher deductibles and other cost-sharing requirements. Even with current efforts, studies show that nearly half the health plans nationwide will trigger the tax in 2018 and many more shortly thereafter.”
Klein also questioned the estimates from the Congressional Budget Office (CBO) that have the tax pulling in $87 billion over 10 years. Only about 25 percent of the estimated revenue is expected to come from the actual imposition of the tax, while the other 75 percent is based on the assumption that employers will lower their health costs and make up the difference to employees with higher taxable wages.
“The irony is that if CBO is right, this will be a massive tax hike on working Americans,” Klein said. “If they are wrong, the revenue will never materialize.”
In May, ASAE submitted to the IRS comments [PDF] detailing some of the administrative challenges employers are likely to face when the tax takes effect. ASAE noted that calculating the applicable cost of coverage is not easily determinable because some additional costs are typically not administered through the same vendor as the group medical insurance. In some cases, it will be difficult to determine which vendor is responsible for paying the excise tax or which party will be held responsible if there are errors in making the calculations.
Last week, The Washington Post published an editorial in support of the Cadillac tax, prompting a response from ASAE’s Chief Administrative Officer, Robert Skelton, CAE.
“Employers will not voluntarily pay the tax, and, as the editorial points out, have already begun cutting benefits and increasing copays and deductibles,” Skelton wrote in a letter. “Many will likely stop offering healthcare savings and flexible spending accounts. The result: Fewer benefits and more money spent out-of-pocket for healthcare.”