Dress Up the ACA ‘Cadillac Tax’ and Call It a Different Name, but It's Still a TAX!
At the conclusion of 2015, I may have been experiencing nostalgia because of the holiday season or maybe it was that rare feeling of legislative success. After all, I did actively advocate with my colleagues in the National Coalition on Benefits to achieve a two-year delay of the implementation of the Affordable Care Act’s (ACA’s) excise tax (also known as the “Cadillac tax”). In the lobbying industry, this is almost unheard of since it takes several congressional sessions to achieve enactment of a bill into law. But this feeling was short-lived.
Now that implementation of the excise tax is delayed, there has been an increased interest on Capitol Hill in identifying alternative approaches to the tax treatment of employer-sponsored health benefits. As you may recall, during debate of the 2010 ACA, efforts to raise revenue and contain costs ultimately resulted in the Cadillac tax on premiums of health benefits plans that exceeded a certain threshold. Without the Cadillac tax, Congress must find a way to increase revenue.
One proposal that is being floated around is capping the tax exclusion for employer-sponsored health benefits. While this approach is being called by a different name, it’s still a tax and could have the same if not a worse impact on employers and employees. A change in the tax treatment of employer-sponsored health benefits could adversely result in employers altering benefits options to reduce premiums and shift costs to employees. Some are of the opinion that if the tax treatment of employer-sponsored benefits is changed, employers would spend less on health coverage and pass savings on to employees, resulting in wage increases, which would be taxed as income. However, this would result in lower take-home wages for employees and more out-of-pocket costs for health care and would ultimately lead to the erosion of the employer-sponsored health care system.
For more than 50 years, the majority of Americans have relied on employer-sponsored health coverage to provide access to high-quality, affordable health care services for themselves and their families. Historically, if you had a job that provided benefits, it was considered a great job! Changes to the long-standing tax treatment of employer-sponsored health coverage will be fraught with potential problems, adversely affecting working families by impeding the ability of employers to offer coverage and of employees to afford it—not to mention the administrative burden that will be imposed on HR professionals who are already operating in a complex regulatory environment. Case in point: The recent Department of Labor’s final regulations allow overtime pay based on a 40-hour workweek, yet the ACA defines full time as working 30 hours a week. There is no consistency.
More than 175 million Americans receive health coverage through employer-sponsored plans. Additionally, more than 1 in 5 workers report accepting, quitting or changing jobs because of the non-wage benefits that an employer offered or failed to offer. Employers can leverage economies of scale to negotiate prices and offer lower premiums to employees than if each employee were to purchase coverage in the individual market. It is evident that American employees enjoy their current employer-sponsored benefits and that now is not the time to implement a new tax!
SHRM remains supportive of reform that lowers health care costs and improves access to high-quality and affordable coverage, including strengthening and improving the employer-based health care system. That’s why the Society for Human Resource Management sent a letter to the chairmen of the Task Force on Health Care Reform urging them to preserve the current tax treatment of employee health benefits. In addition, at the release of the Task Force on Health Care Reform’s proposal, SHRM also issued a press statement.