Over half of employers could trigger health plan excise tax

Last week, Sanders and seven other Democratic Senators introduced a plan to repeal the tax.


Under that Patient Protection and Affordable Care Act provision, which a growing number of lawmakers want to repeal, a 40% excise tax will be imposed, starting in 2018, on the portion of group health care plan premiums exceeding $10,200 for single coverage and $27,500 for family coverage. Bernie Sanders, call for such a repeal, is believed to be motivated in part by opposition to the tax among labor unions, a key constituency for the Democratic Party. No more. If they buy those drugs now, they have to pay out of pocket, including any taxes.

That’s where the so-called Cadillac tax, a central pillar of this strategy, fits in.

The global Foundation of Employee Benefit Plans is the premier educational organization dedicated to providing the diverse employee benefits community with objective, solution-oriented education, research and information to ensure the health and financial security of plan beneficiaries worldwide.

A number of employers have already made modifications to their plans so they will not face the tax. Taxes change behavior, which is why static tax analysis routinely and widely overshoots on revenue. Likewise with a house or a BMW or any other in-kind compensation. No matter how much health insurance your employer gives you, it’s effectively offered at a discount relative to nearly any other form of compensation because it’s not considered taxable income.

Haberman reports that Clinton will roll out “a method of replacing the lost revenue in the Cadillac tax through other means”.

This tax break has had three not-so-great unintended consequences.

Moreover, the tax does very little to equalize the treatment of employer-sponsored and individually-purchased health insurance, since individually purchased insurance is still taxable at all levels.

As the poll notes, skipping care can lead to much higher overall costs later when conditions deteriorate and are more hard to treat, not to mention the increased suffering that results. That premium, as we’ve learned, is tax-advantaged, and your boss can just take it out of the raise you might have received instead.

This is not hypothetical.

Without it, Obamacare becomes one more entitlement program facing ever-rising health-care costs that the country will eventually be unable to afford. In fact, the Affordable Care Act cements the imbalance by mandating that employers of more than 50 workers provide health insurance as a benefit.

In an ideal world, we would probably eliminate the health-insurance exclusion altogether.

There’s a smidgen of a genuine policy concern here: To avoid the tax, a few employers are providing workers plans that rely on higher deductibles and co-pays to hold down health care consumption and, accordingly, costs. She also would have to find alternate ways to control health-care costs, and that seems unlikely.


It’s not clear whether the letter will have any impact on the political drumbeat against the tax. No wonder those who have long touted the law, which emerged from corporate think tanks and was first planted by Mitt Romney in Massachusetts, are circling the wagons and scrambling to defend the tax.

Economists rush to defense of Cadillac tax