Delay of health law's 'Cadillac tax' unlikely to reverse trend of cost shifts to employees

Legislation delayed until 2020
By Ricardo Alonso-Zaldivar
|payroll-reporter.com|Last Updated: 12/17/2015

WASHINGTON (AP) — Don't expect to see much relief from rising costs for workplace health coverage under a federal budget deal that postpones a widely feared tax on generous insurance plans, experts say.

The so-called Cadillac tax, the last major piece of President Barack Obama's health care law, would be delayed two years, until 2020. It was meant to discourage extravagant coverage and help keep costs in check. But opponents including business and labour call it a tax on essentials. Democratic presidential candidate Hillary Clinton advocates its repeal.

Although the tax is still technically on the books, delay would represent a political setback for the White House. Just a few months ago top economic adviser Jason Furman warned that repeal or delay would have "serious negative consequences'' for the health care system.

The Cadillac tax is 40 per cent of the value of employer-sponsored plans that exceeds certain thresholds: US$10,200
for individual coverage and US$27,500 for family coverage. In its first year, it would have affected 26 per cent of all employers and
nearly half of larger companies, according to the nonpartisan Kaiser Family Foundation. The tax is indexed to general inflation, which rises more slowly than health insurance premiums, so over time it would affect a growing share of health plans.

Employers have been scaling back medical coverage for years, shifting more of the direct costs to workers and their families through higher annual deductibles and cost-sharing. Increasingly, they have cited the Cadillac tax as a factor.

If the tax had gone into effect in 2018 as called for, that would have accelerated the cost-shifting trend. Its complex provisions would also have created a major bureaucratic headache. But don't expect much cost relief from the delay.

Delay "mitigates the urgency in efforts to avoid the Cadillac tax but it doesn't diminish employer efforts to shave costs where they can, including their medical benefit programs,'' said Edward Fensholt of the Lockton Companies, a benefits consultancy that caters to medium-sized firms.

"I think what employees can expect to see is more of the same efforts by employers to moderate the impact of rising health costs,'' he added.

"I wouldn't expect companies to backtrack on changes to health insurance coverage that they've already made in anticipation in the tax,'' said Larry Levitt, who tracks the health care law for the Kaiser Foundation.

Demise of the Cadillac tax would still leave policymakers in search of ways to control health care costs. But it wouldn't be the first time that Washington changes direction on restraining health care costs. Congress earlier this year repealed a Medicare formula reducing payments to doctors that it had gotten into the habit of repeatedly delaying.

Among the other health care changes in the budget deal:

The cost of paying the Cadillac tax would itself be tax deductible. Taken together, the tax delay and the deductibility provision are estimated to cost nearly US$20 billion over the 10-year window used for budget estimates.

A one-year moratorium, for 2017, on another tax that the health care law imposed generally on insurers. That's expected to cost US$12 billion over 10 years, although insurers say the tax cut will help keep premiums in check.

A two-year suspension, for 2016 and 2017, of the health care law's tax on medical devices, which is expected to cost nearly US$4 billion over 10 years.

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