In the deluge of recent media stories about who will lose if Congress repeals the Affordable Care Act (ACA), one crucial provision has received short shrift from journalists: the so-called Cadillac tax, written into the law as a way to raise money for government subsidies for the uninsured.
The Cadillac tax, which will affect nearly everyone with employer-sponsored coverage when it takes effect in 2020, is currently the target of bipartisan repeal efforts. Should the tax be repealed, it is not clear how the government would finance those Obamacare subsidies that it helped fund. Which makes the Cadillac tax central to the nation’s health care concerns, and a valuable focal point for reporters—provided they can parse and then relay its significance.
Architects of the ACA intended the Cadillac tax to rein in overly generous health insurance coverage provided by employers to their workers. The tax takes effect in 2020, at which point the value of health plans above $10,800 (for single-person coverage) and $29,100 (for family coverage) will be taxed at a rate of 40 percent. (Those values include the costs of on-site clinics and employer contributions to health savings accounts.)
The result? “In a few short years, the tax will affect all employer plans,” says Steve Wojcik, a vice president at the National Business Group on Health, which is working to repeal the tax. If employers need to reduce the value of their plans to avoid the tax, then they will need to reduce benefits or increase their workers’ share of the cost, which could result in significant increases in out-of-pocket costs for 177 million workers.
Economists, in particular, wanted the tax; MIT’s Jonathan Gruber, who helped to craft the ACA, even predicted the tax might raise workers’ wages from 2010 to 2019. If employers spent less on rich health benefits, the theory went, they’d pass the savings onto their workers in the form of higher wages.
However, says Wojcik, “The reality doesn’t match the theory.” The Kaiser Family Foundation, for example, reported that, between 2011 and 2016, deductibles for single workers increased by 63 percent while wages increased by only 11 percent.
You would think a provision with such far-reaching financial consequences for so many people would have sparked more media coverage. It’s hard to say whether that dearth of attention is because taxes are hard to understand or because Cadillac Tax opponents are working behind the scenes in the halls of Congress rather than delivering anecdotes about sick people fearful of losing their coverage, as many Obamacare supporters have recently done. Whatever the reason, the press needs to start explaining the tax, and soon.
There have been a few stories about politicians introducing bills to repeal the tax, like this one from the Las Vegas Review-Journal, which reported that 1.3 million people in Nevada would be hit by the tax. Occasionally, the tax comes up in the context of a broader story about other ACA provisions or taxes, like this one in The New York Times, in which Sen. Orrin Hatch says, “All of the Obamacare taxes need to go as part of the repeal process.”
But explanations of the tax—how it came to pass, whether it will raise revenue and increase paychecks (as its advocates promised) or destabilize the employer insurance market (as James Klein, president of the American Benefits Council, an opponent of the tax, predicts), what might succeed it—have been missing from most coverage so far.
One option for replacing the Cadillac tax is to tax a portion of a worker’s employer-provided coverage. Those benefits are currently exempt from income taxes. But that solution may not help workers very much: Wojcik told the Wall Street Journal, “In the end, [both taxes] would have similar effects,” including pushing companies toward skinnier health plans.
Last week in the Wall Street Journal, Anna Wilde Mathews began to explore such tax proposals. Gary Claxton, a vice president of the Kaiser Family Foundation, warned that employees’ insurance would have to change, meaning that higher deductibles and narrower provider networks would be coming. Perhaps that’s what the framers of the ACA had in mind. Still, such changes would also affect less generous health insurance packages.
“You could be in a high-deductible health plan and still find the tax would be triggered,” Klein told me. “Plans will trigger the tax, not because benefits are richer, but because the population covered by the plan is more expensive to insure.” That means businesses whose employees have expensive medical care—women of child-bearing age, or older people with greater health care needs, or people with high-cost chronic conditions—are more likely to pay the tax.
Local journalists that can identify such businesses in their communities have an opportunity to present valuable anecdotes and explore the impact of the Cadillac tax in their communities. But such reporting depends on understanding the tax and its consequences.
A few weeks ago, a piece in the Los Angeles Times joined the sizable batch of media stories that have detailed how repealing Obamacare would hurt various groups of Americans. Its headline, “Obamacare repeal would also affect your employer health insurance,” seemed reasonable enough. I moved to the lede, which explained that 31-year-old Stephanie Blythe is expecting a baby in April but has already ordered a breast pump through her insurance company. She is worried about the future of the Affordable Care Act. “Once I have it they can’t take it away from me,” she told the paper. “If I want to continue breast feeding, I’m going to have to pump and do that at work. If it’s something the ACA covers for you, then why not take advantage of it?”
I read on, hoping to find a discussion of the Cadillac tax’s impending impact. The Times focused on other preventive benefits the ACA mandates besides breast pumps: diabetes screenings, folic acid supplements for pregnant women, colonoscopies, contraceptives, counseling for women. The Times told its readers, “Experts say well-woman visits, breast pumps and contraception are in particular danger because they’re on a list of covered preventive services that apply only to women and can be undone without a congressional vote.”
That may be. But if the Cadillac tax takes effect as scheduled, and employers reduce the value of the benefits they offer, then those benefits and many others workers have come to enjoy may disappear.