How the Cadillac Tax Will Reduce Your Health Care Options

There’s a lot not to like about the Affordable Care Act – from the “if you like your plan you can keep it” lie, to rising premiums and deductibles, to the dysfunctional insurance exchanges collapsing all around the country, the law has been a great big mess from the start. But one of the most damaging features of the law has yet you show its full effect. The high-cost plan tax, often referred to as the Cadillac Tax, is scheduled to hit employers in 2018, and it’s already affecting calculations as businesses plan for the future.

The Cadillac Tax is a 40 percent tax on health benefits provided by employers exceeding a certain value. For 2018, that value is set at $10,200, and it will increase in subsequent years along with the rate of inflation. The tax doesn’t apply to the whole benefit, but only the amount exceeding the threshold.

The primary purpose of the tax is twofold: to collect revenue to pay for expanded coverage under the Affordable Care Act, and to discourage employers from being too generous with their benefits. The reason for the latter is that, since employer-provided coverage is tax free, while wages are not, employers are being “too generous” with benefits, and that is driving up the cost of health care.

Like all attempts to use the tax code to manipulate behavior that is seen as undesirable, however, the government is incapable of foreseeing how the incentives will play out, and the unintended consequences of the policy. People, it will be remembered, are not automata who will merely accept changes in public policy without reacting. Instead, they will act to try to maximize their own benefits and circumvent regulations not in their best interests.

Related Content