Government budget forecasters are predicting some potentially disruptive consequences from the Affordable Care Act's pending Cadillac Tax.
In its annual outlook, in fact, the Congressional Budget Office devotes a lot to the uncertain impacts of the Affordable Care Act on federal healthcare spending and healthcare markets.
Among one of the dynamics the CBO is following is the Cadillac Tax, the 40 percent excise tax on health plans with annual costs exceeding $10, 200 for individuals or $27,500 for families starting in 2018. The goal of the tax is to raise upward of $100 billion over several years to help pay for the federal government's spending on subsidies for low-income individuals to access insurance.
According to the CBO's projections, the tax could grow to such an extent that its revenue for the government could end up substantially lowering the overall costs of expanding health insurance
The CBO and the Joint Committee on Taxation estimate that the net federal costs of the coverage provisions of the ACA "will rise sharply as the effects of the act phase in from 2015 through 2017, continue to rise steadily through 2022, and then change little from 2022 through 2025," with the annual costs levelling off at about $145 billion.
A key factor, they conclude, will be the Cadillac Tax. "CBO and JCT expect that premiums for health insurance will tend to increase more rapidly than the threshold for determining liability for the high-premium excise tax, so the tax will affect an increasing share of coverage offered through employers and thus generate rising revenues," officials wrote in the forecast.
"In response, many employers are expected to avoid the tax by holding premiums below the threshold, but the resulting shift in compensation from nontaxable insurance benefits to taxable wages and salaries would subject an increasing share of employees' compensation to taxes. Those trends in exchange subsidies and in revenues related to the high-premium excise tax will continue beyond 2025, CBO and JCT anticipate, causing the net costs of the ACA's coverage provisions to decline in subsequent years."
There may still be time to repeal the Cadillac Tax, which is deeply unpopular with unions, employer groups and America's Health Insurance Plans. Even so, employers with heavily unionized workforces are already preparing for it and adjusting benefits to try to avoid paying through the roof. If many employers do that, the CBO's projections about federal tax receivables and outlays could be quite different.
"We've already seen the impact of the Cadillac Tax on certain large accounts, particularly those that are in the midst of negotiating five-year labor agreements," Aetna CEO Mark Bertolini said in a recent conference call, discussing the insurer's outlook with large employers. "I think the Cadillac tax is already playing a role."
In addition to employers with unions, public employee health plans will have to deal with the reckoning of the Cadillac Tax if they don't make changes in benefits. A majority of local and state government health plans still have Cadillac-level benefits, according to a study by United Benefits Advisors.
"When the Cadillac Tax takes effect in 2018, almost all local and state governments will face huge penalties unless they get their costs under control," a UBA official said last year.
The study estimates that the average municipality in Illinois and Massachusetts, for instance, will have to pay a tax of $5,000 per employee in 2018 -- and then more than $9,000 by 2020.
There is movement afoot among many employers, including public employers, to avoid those kinds of burdens, according to Matthew Austin, an employment lawyer with the firm Roetzel & Andress.
"Virtually every employer I have talked to" is "laying the groundwork to make sure they don't have to pay the 40 percent surcharge on the portion of annual health insurance spending that exceeds $27,500 for a family or $10,200 for an individual," Austin wrote in the law blog Lexology. "Most companies are assuming that the tax will remain in effect and are planning ways to avoid falling victim to it."