Tuesday, August 25, 2015
Kaiser Family Foundation
August 25, 2015
How Many Employers Could be Affected by the Cadillac Plan Tax?
By Gary Claxton and Larry Levitt
As fall approaches, we can expect to hear more about how employers are
adapting their health plans for 2016 open enrollments. One topic likely
to garner a good deal of attention is how the Affordable Care Act's
high-cost plan tax (HCPT), sometimes called the "Cadillac plan" tax, is
affecting employer decisions about their health benefits. The tax takes
effect in 2018.
The potential of facing an HCPT assessment as soon as 2018 is
encouraging employers to assess their current health benefits and
consider cost reductions to avoid triggering the tax. Some employers
announced that they made changes in 2014 in anticipation of the HCPT,
and more are likely to do so as the implementation date gets closer. By
making modifications now, employers can phase-in changes to avoid a
bigger disruption later on. Some of the things that employers can do to
reduce costs under the tax include:
* Increasing deductibles and other cost sharing;
* Eliminating covered services;
* Capping or eliminating tax-preferred savings accounts like Flexible
Spending Accounts (FSAs), Health Savings Accounts (HSAs), or Health
Reimbursement Arrangements (HRAs);
* Eliminating higher-cost health insurance options;
* Using less expensive (often narrower) provider networks; or
* Offering benefits through a private exchange (which can use all of
these tools to cap the value of plan choices to stay under the thresholds).
For the most part these changes will result in employees paying for a
greater share of their health care out-of-pocket.
Comment by Don McCanne
During the markup process for the Affordable Care Act it was common to
hear our legislators talk about patients demanding too much health care
as an explanation for why our health care spending was so high. They
blamed health plans that provided extra-rich benefits - plans they
labeled Cadillac plans. The problem is that their premise was wrong.
These supposedly extra-rich benefits were merely standard benefits
characteristic of the older employer-sponsored indemnity plans such as
Blue Cross and Blue Shield. These were not plans with Cadillac benefits
but rather they were plans with standard benefits, but benefits that are
now provided at Cadillac prices because of our failure to adopt a health
care financing system that would slow the rate of health care inflation.
In recent decades, plan purchasers in the individual market became less
able to afford the high premiums commanded by the ever-increasing health
care costs. In order to keep their premiums affordable, insurers reduced
benefits and increased patient cost sharing, making health care less
affordable even for those who were insured. Medical debt became a
significant contributor to personal bankruptcy and having insurance
often no longer prevented it.
Our legislators, after being spoon-fed by lobbyists and the policy
community, decided that these inferior plans on the individual market
would become the new standard, and the more traditional plans that
provided more effective coverage would suddenly become Cadillac plans.
Thus the advent of the high-cost plan tax (HCPT) - often referred to by
the misnomer, Cadillac plan tax - a 40 percent tax on plan costs above a
certain threshold. This tax was intended to disincentivize the selection
of full coverage plans. By having out-of-pocket money at stake with less
comprehensive coverage, patients would be forced to decide which of
their medical problems they would want managed and which they would
decide to live with (or die from). What a terrible way to reduce spending.
In retrospect, both Republicans and Democrats in Congress have decided
that this tax should be repealed, but for different reasons. Republicans
are simply opposed to any taxes, and Democrats are concerned about
additional tax burdens on lower income individuals with
employer-sponsored plans that provide reasonable coverage (assuming the
tax is paid by forgone wage increases). Hurdles to the repeal of this
tax include reluctance to compensate for the loss of these government
revenues by either assessing new taxes (Republicans opposed) or by
cutting spending on other programs (Democrats opposed), plus a
reluctance for a highly polarized Congress to work together on anything.
The important policy issue is not the tax, it is the decision to control
spending by erecting financial barriers to care through the design of
the insurance product - consumer-directed health care. This prevents
patients from getting care that they should have while exposing them to
financial hardship. Instead we should be providing everyone with prepaid
health care while controlling spending through more humane, proven
policies that are in use in many other nations. Of course, these are the
policies that are inherent in a well-designed single payer national
Forget the Cadillac imagery. Let's talk about providing affordable
health care for everyone.
at 2:45 PM