• WisBusiness

Tuesday, June 4, 2013

Peter Frittitta, Al Campbell: The Affordable Care Act has a “Cadillac tax” on businesses


By Peter Frittitta
and Al Campbell
The "Cadillac Tax" which is part of the Affordable Care Act (ACA), or ObamaCare if you prefer, is not to begin until 2018. That is far enough away as to not have to be worried about for a few years. Right? Think again.

Employers would be facing a new 40 percent tax on the portion of annual health benefits provided to employees and dependents that exceeded $10,200 for an individual and $27,500 for a family. That cost is inclusive of both the employer's and employee's share of cost.

According to the New York Times, employers are already beginning to make modifications to the plans they offer even before 2018, and are plotting the probable cost of health care insurance by that time. Co-payments are likely to be increased and deductibles will almost certainly increase between now and 2018. Some are predicting family deductibles of $6,000 or more in the not too distant future. This Act, already being nicknamed the "unaffordable" care act, has real teeth. Employers are caught in a vicious cycle where they work to keep employees and dependents happy with their health care insurance coverage only to recognize this might well result in their plan becoming designated a "Cadillac" plan.

Many have difficulty in believing there are actually plans that could be that rich in benefits, but the reality is that some of the unions that originally supported the ACA are quickly coming to understand that the President's statement "if you like your health care plan, you can keep it," isn't going to be the case unless Congress makes some changes. These plans are already very near or even beyond the cost threshold that identifies a "Cadillac" plan; that is at today's costs for health care. If the annual expected inflationary increase is factored into that equation, it becomes quite easy to recognize the plan will be 'too good' and will therefore result in a 40 percent tax.

Some labor leaders now recognize that with the President in his second term, any negotiating advantage they might've had is gone. The President is intent on this signature law to frame his two terms in office. He is quite unlikely to think about signing a bill passed by Congress that erodes what he sees as the benefits of the ACA.

This phenomenon is not limited to union negotiated health plans either. It is a threat to larger non-unionized employers who have classically provided better levels of benefits in order to be able to attract new hires in competitive marketplaces in Wisconsin.

A health economist at Johns Hopkins Bloomberg School of Public Health, Bradley Herring, has estimated that as many as 75 percent of plans in existence today could be affected by the "Cadillac tax "over the coming decade. And that will affect employee's total compensation as well as their health plans since the 40 percent tax has to come from somewhere and that 'somewhere' is very likely the total budget for benefits and compensation.

It is very important employers seek sound advice from those who can help walk them through the ACA maze of new compliance regulations.

-- Frittitta is president of the Wisconsin Association of Health Underwriters. Campbell is a WAHU board member.


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