Future uncertain for ACA's 'Cadillac Tax'
Q: In late 2018, Republicans in the U.S. House of Representatives released a draft tax bill that would delay the Affordable Care Act's Cadillac tax from 2022 to 2023. Meanwhile, certain advocacy groups aggressively pushed for a complete repeal of the tax. Why?
A: The so-called “Cadillac Tax” is one of the most unpopular provisions in the Affordable Care Act. While the tax was effectively intended to punish “rich,” “extravagant,” or so-called “Cadillac” employer-provided medical plans, if it ever goes into effect, it will almost certainly apply eventually to the majority of employer-provided medical plans in America. Thus, it's really not a “Cadillac” tax at all. It will impose a tax on a number of employer plans that few would label as “rich” or “Cadillac.” That's why there's reportedly broad support on both sides of the political aisle for a complete repeal of the tax.
Q: What would the Cadillac tax do?
A: If it goes into effect in 2022, the Cadillac tax will impose a 40 percent nondeductible excise tax on (theoretically) high-cost employer-provided medical plans. The provision taxes the amount by which the monthly cost of an employee's employer-provided medical coverage exceeds the specified limits. It was originally set to become effective in 2018 but it's been delayed several times. It currently is set to become effective in 2022.
Q: What kinds of medical plans might be subject to the tax?
A: While the tax was intended to raise revenue by punishing “rich” medical plans, it looks like medical plans with lots of family coverage, plans with employees who have chronic health conditions, plans with employees who have catastrophic health events, plans with a large number of older workers, and plans that exist in geographic areas where health care costs are relatively more expensive are all at risk of being subject to the tax. There are other plans at risk as well.
Q: How can employers avoid the tax?
A: There are a number of potential strategies, many of which unfortunately involve cost shifting to employees. Employers could increase the amount employees have to pay for things like deductibles and co-insurance. No one wants to do this. Again, this is why the tax is so unpopular, because it threatens the health coverage that more than 181 million Americans receive through their employer-provided medical plans.
Q: What is the status of the Affordable Care Act (ACA) in general?
A: Last month, a federal judge in Texas ruled that the entire ACA is invalid. That ruling is on appeal, but it will be very interesting to see if that decision stands. It also will be very interesting to see what steps the now-Democrat-controlled House of Representatives takes to preserve the ACA.
PAULA BURKES, BUSINESS WRITER
Published The Oklahoman, January 10, 2019