Obamacare Tax Aimed At 'Cadillac Plans' Will Hurt Ordinary Workers: Report

Posted: Updated:
OBAMACARE TAX CADILLAC PLANS
President Barack Obama listens to a question during a news conference with South Korean President Park Geun-Hye, not pictured, in the East Room of the White House in Washington, Tuesday, May 7, 2013. (AP Photo/Jacquelyn Martin) | AP

One Obamacare provision targeting employers that offer overly generous insurance could wind up costing Americans with pretty ordinary health plans, a new report finds.

The Affordable Care Act includes a tax on high-cost insurance plans that’s both a funding mechanism for the law and meant to encourage patients with a menu of generous health benefits to choose only necessary services. But the tax could wind up hurting workers who pay premium dollars for not-so-premium health plans, according to a new report from the left-leaning think tank the Economic Policy Institute.

“[The tax] was sold as being on 'Cadillac Coverage.' The idea was that there were some people out there that are getting thousands and thousands of dollars worth health insurance premiums,” said Elise Gould, the director of health policy research at EPI and the author of the report. “But the reality is that health insurance premiums can be expensive for many different reasons, not just because they have generous coverage.”

The tax kicks in once an employer-sponsored plan is valued at over $10,200 for an individual and 27,500 for a family, according to The Washington Post. The employer pays a 40 percent tax on the difference between the threshold and the value of the plan.

The tax on high-cost plans is the largest long-term tax increase in the law, according to WaPo's Ezra Klein. It takes effect in 2018 and aims to tax “unusually expensive, employer-provided health insurance plans,” Klein wrote in a post last year. He went on to explain:

The idea behind the tax isn’t to raise money: It’s to change behavior. The hope is that it will pressure employers and workers to choose less-expensive plans. If it works, additional tax revenue will be generated less by so-called “Cadillac” plans subject to the excise tax than by employers delivering more of their workers’ compensation in the form of taxable wages and less in the form of expensive health-care benefits.

But because the tax is focused on high premiums, not high levels of coverage, companies that tend to pay higher premiums -- like small businesses and employers with a high proportion of sick workers -- could wind up paying the tax even though their benefits aren’t particularly generous, the EPI study found.

In addition, if employers try to avoid the tax by shifting to less generous plans, workers will likely suffer when it comes to their overall compensation, even if they get a boost in wages to make up for the lost health benefits, according to EPI. What’s more, those workers who need medical care would end up with higher out-of-pocket costs.

“It was sold as a way to tax quote-un-quote Cadillac plans, and it's not a particularly well-designed tool to do that,” Gould said. “What you’re doing is you’re putting people into less comprehensive health plans. The burden winds up being borne [by] those people who actually need to consume health care.”

Also on HuffPost:

Close
Obamacare Haters
of
Share
Tweet
Advertisement
Share this
close
Current Slide

Suggest a correction

Around the Web

Buckle up: IRS gears up to impose Obamacare's 'Cadillac' tax | Twitchy

The most important tax increase in 'Obamacare' - Washington Post

Time to Trade-In the Cadillac Health Plan | McGrath Insurance ...

Top 10 Obamacare taxes coming your way - Human Events

Study: Obamacare's 'Cadillac' health care tax would hit half of all ...

Upcoming Obamacare Tax on Comprehensive Plans: Even the Unions Are ...

How Obamacare Will Affect Your Business