Benefits

A ‘Cadillac’ Tax Exemption in the Auto Industry? Driving a Sweet Deal

By Rick Bell

Sep. 18, 2015

While companies and organizations begin to sweat the fact that no matter how mediocre their health care plan may be that it’s likely to be subjected to the so-called “Cadillac” tax, auto workers are negotiating a pretty sweet deal that could shield their plan from the controversial tax set to take effect in 2018.

Fiat Chrysler Automobile’s current negotiations with the United Auto Workers union is nearly complete and among the provisions is protection from the Affordable Care Act’s 40 percent excise tax on employer-sponsored health care coverage that provides high-cost benefits to employees, aka the Cadillac tax.

This, from a list of bulleted items detailing wage hikes in Automotive News (increases of 3 percent: one at contract ratification and a second in September 2017), bonuses (lump sum bonuses in 2016 and 2018 of 4 percent of pay), paid time off (the Monday following Easter)and in-office services (preparation of wills and residential real estate matters; sort of sounds like an in-house EAP to me):

“An agreement to limit the impact on union members of a threatened excise tax on high-end health care plans as part of the Affordable Care Act, either by amending the benefit plan by mutual agreement, or limiting deductibles for those that are hit with the excise tax.”

So automakers are just biting the bullet and sucking up the 40 percent tax? Or, maybe they’re banking on the growing chorus to repeal the tax by coalitions like The Alliance to Fight the 40, which grows louder by the day. This comes on the heels of reading a plea in the comments section of a story on Workforce.com titled “Coalition Sets Collision Course With Cadillac Tax” by my colleague Sarah Sipek.

Karen Oakes plainly spelled out what many thousands of employers are coming to grips with: This law is going to add an unworkable financial burden to doing business.

“Once again, the government chooses a ‘one size fits all’ approach to funding the ACA,” she wrote. “We, as a nonprofit, are going to be hit with $175,000 ‘fine’ because a majority of our staff opted for Covered CA. As an organization that barely hits revenue over expenses each year, there is no room for this fee. And because we have an aging population of staff and two really bad claims years, our health insurance premiums cost enough to trigger the ‘Cadillac tax’ when in fact our plan is awful — $3,500 deductible; $10,500 out-of-pocket max, $35 office visit copay, etc. Our dollars are purchasing a crappy plan and yet we get hit with a Cadillac tax??? We are a struggling nonprofit trying to stay afloat in California, where minimum wage is expected to go up to $15 per hour in five years, trying to do business without having received any raise in our reimbursement rates which are based on the cost of doing business in 2001. Unless the ACA exempts nonprofits from the fines and the Cadillac tax, and the government can see it in their hearts to increase our funding, we will likely no longer be in business in 2020. We provide services to over 600 adults with developmental disabilities and provide jobs for over 200 employees. This ‘Cadillac’ tax on our ‘bicycle’ plan is completely ridiculous.”

You can’t help but feel for Karen and thousands of managers and small-business owners in her shoes. Yet we see that at least one mega-industry is willing to shield its employees — unionized, in this case — from the Cadillac tax and you have to ask, how can they really do that? The ACA is supposed to be about leveling the playing field so all Americans have access to health care. There also needs to be equity for businesses and their employees when it comes to the affordability of health care by the time the Cadillac tax kicks in some 27 months from now.

Rick Bell is Workforce’s editorial director. For comments or questions email editors@workforce.com.

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