Study: Obamacare Cadillac Tax Forcing Employers to Cut Benefits

90 percent taking action to avoid penalty

Healthcare.gov

Healthcare.gov / AP

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Nine out of 10 large companies are working to avoid Obamacare’s so-called Cadillac Tax on health insurance plans if lawmakers fail to reform the law, according to a new study.

The American Health Policy Institute, a non-partisan think tank, found that nearly every major employer in the country is taking steps to avoid the tax, which targets comprehensive health plans deemed to be luxurious by regulators. The law will hike taxes by $68 billion for American workers.

"The excise tax is already driving many employers to fundamentally reassess their health care plans. While the tax was intended to reduce health care spending, its impact in the real world is being felt by workers who are seeing the value of their health care plans reduced," it says.

The institute surveyed major employers across the country about whether any of their health plans would be affected by the tax, as well as what steps they are taking to deal with the law. Nearly 20 percent of companies reported that they were slashing benefits to avoid triggering the law. The policy, the report says, could lead to "a potential collapse of the employer-sponsored health insurance."

"The excise tax continues to be an important health policy issue and is going to impose real costs on both employees and employers alike," the report says. "Some health care policy theorists say that the excise tax will curtail health care expenditures. Health care policy realists understand that solving the excise tax facing many employers as well as making changes to future payment policies are necessary to stave off a potential collapse of the employer-sponsored health insurance."

The tax was supposed to go into effect in 2013, but lawmakers pushed back implementation to 2018. It has drawn bipartisan outrage from businesses and unions. Laborers International Union president Terry O’Sullivan has famously called for the repeal of Obamacare if lawmakers do not amend the tax.

Nearly the entire House GOP opposes the 40 percent tax, while Democrats, including frontrunner Hillary Clinton, have bucked the administration line and called for repeal.

Nearly three out of four employers said they would not raise wages to compensate for health benefit reduction, while only 16 percent said they embraced the idea. About 30 percent said they will get hit by the tax in 2018 and 50 percent said they would be affected by the law come 2023. The law will not just hit the luxurious "Cadillac" plans, but nearly every worker over the next 15 years.

"Because the threshold for the excise tax increases over time by the CPI and not medical inflation, by 2031, the cost of today’s ‘average plan’ will hit the threshold for the excise tax," the report says. "Although the excise tax may have been sold as a tax on overly generous ‘Cadillac’ health benefits, in reality it is impacting ordinary health plans that are expensive simply because they are offered in high-cost areas, or because they cover large numbers of people whose health costs are higher than average—women, older and disabled workers, and families experiencing catastrophic health events."

Bill McMorris   Email Bill | Full Bio | RSS
Bill McMorris is a staff writer for the Washington Free Beacon. He joins the Beacon from the Franklin Center for Government and Public Integrity, where he was managing editor of Old Dominion Watchdog. He was a 2010 Robert Novak Fellow with the Phillips Foundation, where he studied state pension shortfalls. His work has been featured on CNN, Fox News, The Economist, Colbert Report, and numerous print publications and radio stations. He lives in Alexandria, Va, with his wife and three daughters. His Twitter handle is @FBillMcMorris. His email address is mcmorris@freebeacon.com.

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