Business-Labor Coalition Seeks to Repeal ‘Cadillac Tax’

Employer groups and unions see 40% excise tax as threat to health benefits

By Stephen Miller, CEBS
7/30/2015 - Society for Human Resource Management

A coalition of business and labor has launched an effort to repeal the looming 40 percent excise tax on high-value health plans, popularly referred to as the “Cadillac tax.”

The Alliance to Fight the 40, which held an initial conference call with the media on July 28, 2015, includes private- and public-sector employers, unions, consumer groups, trade associations, insurers, brokers and other organizations.

Starting in 2018, the Affordable Care Act (ACA) will impose a 40 percent nondeductible tax on employer-sponsored coverage above an established value threshold—$10,200 for employee-only and $27,500 for family coverage—which after 2018 will be indexed for inflation. The threshold includes employer- and employee-paid premiums for health plan and wellness program benefits, and even extends, in the Treasury Department’s view, to employee-paid contributions to health savings accounts when deducted from salaries through a section 125 cafeteria plan. (The American Bankers Association, however, in a May 2015 comment letter contended that the IRS has the authority to exclude employee HSA contributions from the excise tax threshold, and encouraged the IRS to do so.)

“The 40 percent tax hits ordinary plans that are expensive simply because they cover many people with high health costs—women, older and disabled workers, and families with catastrophic health events,” said James A. Klein, president of the American Benefits Council, a trade group that helped organize the coalition. “Protecting employer-sponsored health coverage is not just a union or business or public-sector or private-sector issue,” said Klein. “The 40 percent tax puts at risk the employer-sponsored health system covering over 150 million Americans.”

“This is not a ‘tomorrow is another day’ problem,” Klein added. “Employers are reluctantly compelled, right now, to require employees to bear a larger share of escalating costs in an effort to avoid triggering the tax. Employees are already facing higher deductibles and other cost-sharing requirements. Even with current efforts, studies show that nearly half the health plans nationwide will trigger the tax in 2018 and many more shortly thereafter.”

The Congressional Budget Office “estimates that three quarters of the projected $87 billion revenue will come from employers lowering health costs and making up the difference with higher taxable wages,” Klein noted, adding, “this will be a massive tax hike on working Americans.”

Strange Bedfellows

“This has to be a pretty bad deal if you bring business and labor together in a way that often has us at odds,” said D. Taylor, president of the North American labor union UNITE HERE! “We actually would like to put ‘affordable’ back into the Affordable Care Act. The realities of the people we represent, the housekeepers, the cooks, the kitchen workers and crew servers, they fought for years, often giving up wage increases in order to have good health benefits for themselves and their families. Putting a 40 percent tax on the type of people we represent, who generally make under $50,000 on combined salary and benefits, is just absurd.”

Rep. Frank Guinta, R-N.H., who is among those who would like to repeal the Affordable Care Act entirely, said he nevertheless supports bringing before Congress a narrowly tailored bill just to repeal the 40 percent excise tax. “We want it to be as simple as possible,” he said. “We don’t want anyone to have a reason to vote against this; we don’t want to do anything other than give both Republicans and Democrats an opportunity” to repeal the excise tax.

A Wide Reach

“Unfortunately, the 40 percent tax doesn’t just apply to the health plan,” noted Kate Hull, executive director of the Corporate Health Care Coalition, representing corporations that provide health care benefits. “It also adds in wellness programs and many other tools used by employers to lower costs and incentivize active participation by employees in decisions affecting their own health care. Cost-savings tools such as health savings accounts, flexible spending arrangements, onsite medical clinics and even employee assistance programs are all included under this tax.”

According to a Towers Watson survey, she noted, “roughly half of large employers will hit the tax thresholds in 2018, and this number will continue to rise rapidly.”

Rep. Joe Courtney, D-Conn., pointed out that “2018 is now if you’re negotiating a multiyear labor contract.” Picking up on Hull’s remarks, he added, “The calculation of what is a premium will sweep up the employees’ share, with no tax shelter through health savings accounts. It will also sweep up wellness/prevention provisions, which a lot of employment-based plans are offering all across the country as a way to reduce costs the smart way.”

The excise tax “really undercuts a lot of the mission of the Affordable Care Act by undermining the implementation of really smart health care delivery reform, which at the end of the day is the best way to reduce health care costs,” Courtney said.

Excise Tax Has Defenders

Although none were present at the Alliance to Fight the 40 media briefing, the excise tax has defenders as well. For instance, an analysis posted July 24, 2015, on the website of The Brookings Institution, a Washington, D.C.-based policy institute, offers a counterargument.

Titled What the ‘Cadillac Tax’ Accomplishes--And What Could Be Lost in Repeal, David Wessel, director of the Hutchins Center on Fiscal and Monetary Policy and a Brookings Institution senior fellow, argued: “Repealing the Cadillac tax would be a significant setback to efforts to curtail tax breaks and other policies that, while popular, encourage overuse of the health care system or favor inefficient health care providers.”

He concluded, “Abandoning it would be a worrisome sign that political timidity dooms almost any policy to slow the growth of health care spending.”

Stephen Miller, CEBS, is an online editor/manager for SHRM. Follow me on Twitter.

Related SHRM Articles:

Treasury Official Addresses 2018 Excise Tax Concerns, SHRM Online Benefits, March 2015

Cadillac Excise Tax Notice Raises Questions, SHRM Online Legal Issues, March 2015

IRS Issues Initial ‘Cadillac’ Excise Tax Guidance, SHRM Online Benefits, February 2015

Employers Alter Health Plans to Drop Costs, Avoid Tax, SHRM Online Benefits, November 2014

Tracking the Excise Tax Impact on High-Value Plans, SHRM Online Benefits, October 2014

Related Resources:

Cadillac Tax Hurricane Preparation: After-Tax HSA Contributions, Employee Benefit News, July 2015

What Does the ACA's Excise Tax on High-Cost Plans Actually Tax?, Milliman, April 2015

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