While efforts to repeal and replace the Affordable Care Act (ACA) are currently suspended, legislation is being crafted to address many outstanding health care issues before year’s end including provisions to address health-related tax policy. SHRM has long-championed a repeal of the “Cadillac” tax on high-value employer-sponsored health benefits. That’s why we are advocating for a year- end package to include a repeal or delay of the tax given the very real consequences the tax is already having on employers and employees.
Back in 2015, Congress delayed the implementation of the Cadillac tax until 2020. While the effective date of the tax has been pushed back, the policy is already having an impact.
Here’s why: many employers plan for and determine benefits up to two years in advance. Employers are already restructuring their health care benefit offerings to avoid the anticipated tax. If the Cadillac tax is not repealed, many employers may be forced to cut benefits, alter wellness and chronic care prevention programs, and reduce innovative new benefit offerings. To add to this conundrum, employees will be hurt by higher copays and deductibles, which might even cause some to decline employer-provided health care.
Time is of the essence. We are once again approaching that critical 2-year window, and Congress must act to prevent irreversible changes that could hurt millions of American employees and their families.
Yes, that’s right - the tax will hurt American employees and their families. The Cadillac tax was initially intended to target high-value plans; however, more modest plans will be impacted, too. This means hardworking Americans and their families could face a significant reduction of their benefits with an increase in their cost-sharing because of this tax. In reality, the tax unfairly and disproportionately affects middle-income Americans.
The majority of middle-income Americans have health coverage through their employer. The tax applies to many benefits that employers offer to help control increasing health care costs including on-site medical clinics, certain wellness and employee assistance plans, health savings account contributions, health reimbursement arrangements, flexible spending accounts, and other pre-tax health benefits. This will cause many employer-sponsored plans, to hit the tax threshold earlier than expected.
Moreover, small businesses, employers with a high proportion of women and older workers will also be impacted. Why would small businesses and an employer’s workforce with women and older workers be impacted by this tax, you ask? That’s because small employers on average pay more than large businesses for their health plan since they don't benefit from pooled risk the way a large employer does. Similarly, employers with a high proportion of women and older employees are likely to be impacted because their health care premiums tend to be higher.
According to SHRM’s 2016 Employee Benefits Research Report, 96 percent of member organizations offer health care coverage to employees and their dependents. If the tax goes into effect, 33 percent of SHRM members’ organizations will be subject to the tax. To add, a recent survey by the American Health Policy Institute found that 31 percent of large employers would have a health care plan subject to the tax in 2020, and 42 percent would have a plan subject to the tax in 2021. With the continued increase in health care costs and absent congressional action to repeal this tax, almost all employer-sponsored health plans will be subject to the tax in the future.
The Cadillac tax has been widely opposed by both Democrats and Republicans along with a wide coalition of business, health, and labor organizations. More than 200 members of the U.S. House of Representatives have cosponsored legislation to repeal this burdensome tax. It’s time for Congress to scrap the Cadillac tax!
Chatrane Birbal is Director, Policy Engagement at SHRM.
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