HR Administration

The Last Word: Cadillac Tax Could Drive Business into a Wall

By Rick Bell

Oct. 20, 2015

It’s becoming clear that no matter how good, fair or mediocre an organization’s health care plan may be, employers are beginning to sweat the fact that their employee benefits could be roadkill when the so-called “Cadillac” tax arrives in 2018.
 
Originally touted as an excise tax on “rich” benefit plans — the ones that bear the brunt of health care costs through minimal copays, expansive provider networks and hefty coverage of expensive procedures — the Cadillac tax was touted as a fiscal white knight, helping fund coverage access on the Affordable Care Act’s public exchanges.

The tax was buried somewhere within the 900-plus pages when the ACA became law in 2010 and was largely overlooked — understandably so, considering that pre- and post-passage hysteria surrounded death panels and individual mandates, never mind that 2018 seemed like a lifetime away as our economy was being throttled at the time.

Well, eight years has dwindled to 26 months, and while the Caddy hasn’t pulled into the garage yet, it’s fast approaching. The Cadillac tax is playing a fast and furious game of chicken with the potential to cripple thousands of organizations and the workers who depend on their employers for health care coverage.

Organizations should be deep in the planning stages of how the Cadillac tax will affect them, especially when considering that in a recent Kaiser Family Foundation analysis, 1 in 4 companies could be subject to the tax. But federal agencies constantly rewrite the owner’s manual, releasing mixed messages through its FAQs and formal guidance.

As one speaker at the recent EBN Benefits conference admitted to an audience of several hundred HR and benefits managers, “It’s hard to tell which companies will be subject” to the Cadillac tax. About the deepest insight she could offer was “plan for it, and if it doesn’t happen, be pleasantly surprised.”

Not only is this pending wreck happening in the dark,  no one knows who’s steering and the owner’s manual contradicts itself.

Despite the confusion, the Cadillac tax could be towed to the junkyard before hitting the showroom floor. Despite the president's recent threat to veto any attempt to repeal it, a groundswell of bipartisan support wants the tax overturned and has given rise to the Alliance to Fight the 40, a broad-based coalition of insurers such as Aetna and Cigna, advocacy organizations including the American Benefits Council and WorldatWork and several labor unions.

The coalition pointed out in September just how devastating the Cadillac tax could be to nonprofits and religious organizations, saying it will likely affect a greater share of nonprofit employees than for-profit employees. Citing the U.S. Agency for Healthcare Research and Quality, premiums paid by nonprofit employees average higher than premiums paid by the general working population. Even more ominously, they add that it will tax charitable not-for-profits at the highest for-profit corporate tax rate for offering health care to their employees.

And as automakers and the UAW negotiate a new contract, it appears that the Detroit Three won’t bat an eye to maintain superior coverage for employees. One report noted an agreement would “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.”

Sadly, smaller organizations and nonprofits have no such luxury. In the comments section of a story on Workforce.com titled “Coalition Sets Collision Course With Cadillac Tax,” Karen Oakes summarizes what many thousands of employers are coming to grips with: This tax could put them out of business.

“We, as a nonprofit, are going to be hit with a $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. 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. 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.”

You can’t help but feel for Oakes and thousands of managers and small-business owners in her shoes. The ACA is supposed to level the playing field so all Americans have access to health care. But 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 parks itself in January 2018.

Or we can close our eyes and wait for the collision. That is, unless it’s repealed or rewritten. If so, we’ll all be pleasantly surprised.

Rick Bell is Workforce’s managing editor. To comment, email editors@workforce.com.

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

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