The proposed two-year delay in the implementation of the Affordable Care Act’s “Cadillac Tax,” an element of Congress’ emergency government funding bill, is now law after President Trump signed the bill on Monday.
Under the new timetable, the tax — a 40% excise tax on the cost of health plans above an established threshold — won’t be assessed until 2022.
But a key question for companies is what, if anything, should they do differently now with respect to benefits planning?
The question is pertinent because there remain significant doubts as to whether the tax will ever be implemented. Unless sentiments change, such an action will be a non-starter politically. No one wants it — neither Democrats nor Republicans, nor employers or employees, nor insurance companies or health-care providers.
Bipartisan legislation to fully repeal the Cadillac tax was introduced in Congress last year, but that effort has lain dormant for months while other priorities took precedence.
Now, though, there’s a strong possibility that the repeal legislation will come to life and ultimately get passed, according to Steve Wojcik, vice president of public policy for the National Business Group on Health, a coalition of 400-plus large employers. With the additional two-year delay in place and efforts toward a full repeal of the ACA having run aground last year, repealing the tax likely will become Congress’ top health-care priority.
Plus, over the past few years the Congressional Budget Office has been consistently revising downward the tax’s estimated impact on the federal budget, Wojcik notes. That will “make it easier to get rid of,” he says.
He compares the Cadillac tax to a provision of the Balanced Budget Act of 1997 that decreased health-care providers’ Medicare reimbursements. Congress delayed its implementation numerous times. Subsequent legislation reversed aspects of the provision, while others took effect only briefly or not at all.
So, given all the doubt about whether the Cadillac tax will ever take effect, should companies divorce it from their long-term benefits-planning strategies?
No, says both Wojcik and Tracy Watts, senior partner and U.S. leader of health-care reform at Mercer, the big human capital consulting firm. The tax is still on the books, so employers should remain mindful of it.
“There are still a lot of uncertainties that employers have to factor in when planning health benefits,” says Wojcik. “They have extra breathing room on the Cadillac tax now, but 2022 is not that far out into the future, so you still have to factor it in.”
In the meantime, says Watts, Mercer will be working hard along with other employer coalitions and advocacy groups to get the tax repealed.
In addition to the NBGH, the American Benefits Council, a similar-sized advocacy group, is an avid supporter of repeal efforts. The ABC is key member of The Alliance to Fight the 40 / Don’t Tax My Health Care, a broad-based coalition of businesses, patient advocates, unions, local governments, health-care companies, consumer groups and other stakeholders.
“Taxing health benefits would compel employers to stop offering wellness programs and on-site clinics and to reluctantly ask employees to bear higher out-of-pocket costs,” says James Klein, president of the ABC.
For Mercer’s part, the reasons for the push-back are twofold. First, when the ACA was passed in 2010, the firm immediately surveyed employers, who said the Cadillac tax was their top concern even though it was scheduled as the last provision of the law to take effect. That stance hasn’t wavered in the years since, Watts notes.
Second, the design of the tax is significantly flawed. “Using cost as a proxy for the richness of benefits just doesn’t work,” she says. “There are so many factors beyond plan design that impact cost, including the age of an employer’s [employee] population, geographic location, the number of dependents covered, and whether unions are in play, to name just a few.”
With respect to the tax still being scheduled to eventually take effect, the biggest issue for companies isn’t doing the financial modeling to understand whether or when their health-care spending will reach the threshold for triggering the tax, according to Watts.
“It’s more the lack of guidance for exactly how [the tax’s implementation] will work,” she says. “We’re working with just a couple of pages of content that are in the original ACA law, and nothing else.”
For example, the law says employers must include the cost of on-site health centers in their Cadillac-tax calculations. “But it doesn’t tell us how to do it,” Watts notes.
When the ACA was passed, Mercer told lawmakers and regulators of concerns that the anticipated influx of new insureds might make health care more difficult to access.
“We said that onsite health centers could help alleviate some of that pressure, so why would you want to tax them?” recalls Watts. “They said not to worry about that because they’d deal with it when they wrote regulations [for implementing ACA provisions]. But that hasn’t happened. Every day employers are having to make decisions that could intersect with the Cadillac tax, without knowing ultimately what that will mean.”
Wojcik notes that companies will continue their quest to control their health-care costs without regard to whether or when the tax will take effect.
“But if it does take effect, employers will have some hard decisions to make,” he says. “It’s highly unlikely that they would acquiesce to paying the tax.”