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- The annual maximum premium thresholds are $ 10,200 for individuals and $27,500 for families.
- The Cadillac tax applies to plans with premiums at or above $10,200 for individuals
- The Cadillac tax applies to plans with premiums at or above $27,500 per year for families
- The tax is 40 percent of the value above the individual and family thresholds
The policies behind the Cadillac Tax are to discourage lavish benefits and make all consumers better and more determined shoppers. Buying power interprets into a pricing influence when consumers share the goals of seeking and finding the lowest possible price for needed services. Compare health insurance plans now by using our FREE tool above!
Lavish plans reverse ration the available services. People with no incentive to get low prices and shop before using services inflate the rice of all services. These consumers encourage providers to charge without reference to the individual’s ability to pay since plans cover nearly every cost, and deductibles are low. Comparison shopping is the opposite economic force. It helps consumers find low prices and higher value for their dollar. When consumers must pay, they have a strong incentive to find the least expensive way to achieve their needs.
The Economic Impact of Cadillac Plans
As benefits, the loaded health plans are not taxed as income. The Cadillac Tax may have the effect of forcing employers to pay higher salaries rather than lavish benefits. As a product of collective bargaining, these plans are part of a complex economic relationship between large groups of workers and multiple employer groups. They represent more than lavish benefits; they are part of the bargained-for exchange. In a strictly economic sense, employers should be encouraged to invest in the health of their workforce as part of their business technology. The below-listed factors address the impact of the Cadillac Tax in Obamacare.
- Overuse of resources because of no costs to Cadillac plan holders
- Cadillac plans increase prices for all consumers
- Reverse rationing shortages caused by low-costs to Cadillac beneficiaries
- Tax revenues reduce overall net costs of health care
- Cadillac beneficiaries have no incentive to shop for low prices
Structure of the Cadillac Tax
The projections used during the debates on the passage of the Affordable Care Act included the Cadillac Tax as a source of revenue to offset other increases in government spending, such as those for expanding Medicaid to low-income families. The Affordable Care Act contained two clauses that affected union health insurance plans that were part of collective bargaining with employer groups.
Scheduled to go into effect in 2018, these provisions would stop and or tax the high-end health insurance arrangements that were typical of some industries like the entertainment industry.
While many high-end plans protect families of management employees, there were some union-sponsored plans that exceeded the annual Cadillac tax threshold. Based on collective bargaining and in some cases years of negotiations, these unions viewed agreements as part of the compensation won through bargaining.
Repeal, Replace, or Delay
The efforts of labor union and some other interest group similarly affected by the oncoming Cadillac Tax won a delay and modification of the plan. Extended till the year 2020, the two-year delay in instituting the tax also included a provision making the excise amount refundable. A zero net effect compromise is only slightly short of the goal of repeal. Organized Labor, in particular, has harnessed the energies of the Congressional Democratic leadership in supporting repeal of the Cadillac Tax.
- Labor unions bargain for high-end health plans for members
- Employers wish to attract and retain key employees with high-end health plans
- The Cadillac tax encouraged dropping high-end plans
- Union members lose bargained-for benefits
- The delay makes the Cadillac Tax expense deductible
Veto Proof Extension
The proponents of the extension and other terms of the Amendment to the Affordable Care Act inserted them into a massive budget funding bill. The omnibus bill made a veto impossible since so many fundamental government programs were included. It made some tax credits and benefits for low-income persons permanent and softened the blow of losing the Cadillac Tax. Further, the timing of the bill would have left little time for the enactment of major government authorizations before the Congress would run out if time to consider so much work.
The Appeal of Repeal
The arguments for repeal go in two primary policy directions. First, generous and comprehensive health coverage is a precious benefit in the modern job market. Second, the trend in employer coverage has been towards less coverage, higher employee contributions, fewer insurance paid benefits and higher deductibles and out of pocket costs. In many ways, the Cadillac plans today resemble the coverage many expected from collective bargaining in recent decades.
The theory of the Cadillac tax was to raise revenues, to create a source if taxes that would reduce the costs of health care elsewhere in the Affordable Care Act.
To justify the tax, some economic theory came into play. One is that a generous health plan reverses the rationing of health care resources from those who need it to those who can get is for free and will overuse it. The second is that a too generous health care plan will stop consumers from consuming wisely. They will use a lot of services and will not shop for low prices.
The Case for Repeal
The arguments for repeal suggest two formidable points. The first repeal point is that people should see a doctor when they wish and often as they feel they need to do so. The major tenet of health care is early treatment, prevention, and wellness. The second repeal point is that high-value plans that have low costs are an ideal that one would have for everyone if possible. There is nothing intrinsically wrong with a plan that has many insurance paid benefits, high premiums, low cost, and low deductibles. It is the contrast with the most common experience that causes friction. Most consumers must struggle with high deductibles that discourage excessive uses of medical services. Price rationing does not favor those with low or moderate incomes.
What Unions are Exempt From Obamacare Cadillac Tax
The answer is that no unions are exempt. With the delay and the possible refund feature, they may have no wish to be exempt. Plan sponsors expect the impact on employees, employers, and insurers will be neutral. The types of coverage that the Cadillac provision taxes and discourages could be considered ideal coverage from a vantage point of the covered employees.
The employers providing the coverage understand that it is a powerful incentive for retention of key personnel and the overall workforce. The AFL-CIO worked hard for the extension as did several public employee unions. Generous plans were a feature in the entertainment industry. The issue remains as to how to best control health care costs.
Future of the Cadillac Tax
The Cadillac Tax may be part of a broader growth and expansion of organized labor. Insurance companies and employers have pushed sparse and expensive health care to the maximum. They continue to strip benefits in qualified health plans and load more costs on consumers in the form of higher deductibles and costs.
Premium costs may be lower, but many consumers cannot afford to go to the doctor because of the copays and coinsurance costs.
A program of visits for treatment may foreshadow a long line of visit fees and prescription costs. These can discourage or prevent the very kind of early treatment that the law creates with no costs essential benefits. Consumers get a free diagnosis, but it is followed by high out-of-pocket costs for treatment.
In a normal political environment, the Congress would go to work to make things better for Americans. In the current political environment, the House and Senate GOP refuse to help make the ACA better and only want to destroy the entire law with nothing to replace it. Many health care advocates criticize Republican responses to health care financing. Political compromise has always been a requirement for progress in the Republic, and in its elected legislative body, progress is not possible without compromise. In the event of an eventual repeal or reworking of the law, there may be a different result. If the tax and revenue policies win the day, then exemptions will be needed for many labor organizations to maintain current plans.
Better Shopping Habits are a Key to Success
Comparison shopping is the key change in consumer behavior that the Cadillac tax seeks to promote. The Cadillac tax seeks to stop lavish plans and force consumers to be more active and proactive when seeking the best prices for medical services. Overuse of medical care can occur when it has no cost consequence to consumers.
However, there is a fine line of distinction between discouraging overuse and encouraging early detection and treatment. The ACA’s policy of improving price and efficient use of resources is well-served by increased use of comparison shopping and consumer research. The ACA can discourage overuse of resources by taxing high-end plans but at the risk of causing disruptions in other fundamental economic relationships between employers and labor organizations. Enter your zip code in our FREE tool below to compare health insurance rates now!