Employers Cutting Health Benefits in Preparation for Obamacare’s “Cadillac” Tax

A report on employer-based insurance could add flame to the fire to repeal the tax.

Mark Wilson AFP/Getty
Caitlin Owens
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Caitlin Owens
Sept. 22, 2015, 6:51 p.m.

More than two years away from the im­ple­ment­a­tion of the Af­ford­able Care Act’s “Ca­dillac” tax, 16 per­cent of large em­ploy­ers of­fer­ing health be­ne­fits have changed their be­ne­fit plans or moved to less ex­pens­ive plans to avoid go­ing over the lim­its set by the law, ac­cord­ing to a Kais­er Fam­ily Found­a­tion re­port re­leased Tues­day.

The ma­jor­ity of these changes are not good news for the plans’ users: Al­most two-thirds of those plans have in­creased cost shar­ing, and an­oth­er 10 per­cent re­duced the scope of covered ser­vices. Oth­er ac­tions taken in­clude mov­ing be­ne­fit op­tions to ac­count-based plans (such as health sav­ings ac­counts), in­creas­ing in­cent­ives to use less costly pro­viders, and con­sid­er­ing of­fer­ing health in­sur­ance through a private ex­change. More than half of large em­ploy­ers have ana­lyzed their plans to see if they would hit the threshold.

“Our sur­vey finds most large em­ploy­ers are already plan­ning for the Ca­dillac tax, with some already tak­ing steps to min­im­ize its im­pact in 2018,” said study lead­er and Kais­er Vice Pres­id­ent Gary Clax­ton. “Those changes likely will shift costs to work­ers, but ex­actly how and how much will vary for in­di­vidu­al work­ers.”

The Ca­dillac tax, sched­uled to be im­ple­men­ted in 2018, is a 40 per­cent ex­cise tax on em­ploy­er-provided health be­ne­fits that go over a cer­tain threshold. It was in­cluded in the law as an at­tempt to con­trol health care costs, gen­er­ate rev­en­ue for the Af­ford­able Care Act, and ad­dress the gov­ern­ment rev­en­ue lost by the tax ex­clu­sion of em­ploy­er-provided health care plans.

Over the past couple of months, the tax has been at­tacked by groups on and off Cap­it­ol Hill. A group of un­likely al­lies—ran­ging from uni­ons to an or­gan­iz­a­tion rep­res­ent­ing For­tune 500 com­pan­ies—have dubbed them­selves the Al­li­ance to Fight the 40 and are lob­by­ing against the tax. Two bills, with a total of 243 co­spon­sors between them, have been in­tro­duced in the House re­peal­ing the tax. Sens. Dean Heller and Mar­tin Hein­rich in­tro­duced a sim­il­ar re­peal bill in the Sen­ate last week.

But it’s de­bat­able wheth­er the tax is work­ing dif­fer­ently than Demo­crats had en­vi­sioned while writ­ing the law—or if they en­vi­sioned the res­ults at all—as well as wheth­er Re­pub­lic­ans would do much dif­fer­ently giv­en the chance to cre­ate their own health care plan.

“The hope is that em­ploy­ers and in­surers would find ways to re­duce the cost of cov­er­age without shift­ing cost to work­ers, but the ex­pect­a­tion al­ways was that the like­li­est out­come was to re­duce the gen­er­os­ity of cov­er­age,” said Larry Levitt, seni­or vice pres­id­ent of Kais­er, in an in­ter­view be­fore the re­port was pub­lished. “It was in­ten­ded to be a tax on very gen­er­ous in­sur­ance plans.

“It’s some­what iron­ic that Demo­crats who were be­hind the tax are typ­ic­ally not fans of high-de­duct­ible plans or cut­ting back on work­ers’ in­sur­ance cov­er­age,” he ad­ded.

Op­pon­ents of the tax say that it will im­pact not only ex­pens­ive health care plans, as in­ten­ded, but also mod­est health care plans offered in high-cost loc­a­tions or cov­er­ing groups that use dis­pro­por­tion­ate amounts of health care. A sep­ar­ate Kais­er study found that when the law goes in­to ef­fect, about a quarter of em­ploy­ers of­fer­ing health be­ne­fits could be sub­ject to the tax un­less they change their plans.

The polit­ics of re­peal­ing the tax make ac­tu­ally ac­com­plish­ing it com­plic­ated at best. For Demo­crats, it means sup­port­ing a meas­ure that could be later used by Re­pub­lic­ans to point to the fail­ure of the Af­ford­able Care Act. For Re­pub­lic­ans, it would mean re­form­ing the law they have pledged to re­peal be­fore the tax would even take ef­fect. The Ca­dillac tax is also sim­il­ar to parts of con­ser­vat­ive health care re­form plans.

The de­tails of what, ex­actly, the au­thors of the ACA were hop­ing would come from the tax are un­clear.

“Part of the beauty of the Ca­dillac tax was that no one had to get very spe­cif­ic about what ef­fect it might have,” Levitt said. “It would sort of ma­gic­ally pro­duce rev­en­ues and con­trol the growth in premi­ums, but no one had to make any as­sump­tions about how that might hap­pen.”

The Kais­er re­port, which ex­amined em­ploy­er-sponsored cov­er­age as a whole, also found that single and fam­ily premi­ums rose an av­er­age of 4 per­cent this year, which falls in­to a pat­tern of mod­er­ate growth that has pre­vailed over the past dec­ade. Both the share of work­ers with de­duct­ibles and the size of the de­duct­ibles have sharply in­creased since 2010, caus­ing a 67 per­cent in­crease in de­duct­ibles over the same time frame.

“With de­duct­ibles rising so much faster than premi­ums and wages, it’s no sur­prise that con­sumers have not felt the slow­down in health spend­ing,” said Drew Alt­man, Kais­er’s pres­id­ent and CEO.

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