Why Payers Should Care About the Cadillac Tax Repeal

July 19, 2019 - The House of Representatives recently voted 419-6 to repeal the Cadillac tax, which would impact the payers and plans employers choose if the law is formally repealed.

Under the authority of the Affordable Care Act (ACA), the Cadillac tax would impose a 40 percent tax on employer-sponsored health plans in which health coverage costs exceed a certain threshold. That threshold, as Cigna’s Cadillac tax fact sheet explains, is currently set at $10,200 for individual coverage and $27,500 for families, with amounts slightly higher for pre-65 retirees and individuals in a high risk career.

The tax aims to “reduce tax-preferred treatment of employer-provided health care, reduce excess health care spending by employees and employers, help finance the expansion of health coverage under the Affordable Care Act (ACA),” according to Cigna’s fact sheet.

Supporters argue that repealing the tax would incur costs of at least $193 billion through 2029. By 2030, they say, it could rise to $1 trillion.

The Kaiser Family Foundation recently estimated that the tax would affect around 21 percent of employers who offer health benefits. And for employers with FSA contributions, that number rises to 31 percent. Those percentages are projected to significantly increase in the coming years, researchers added.

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“It will affect virtually all employer plans if it ever takes effect because it's indexed to overall economic inflation and not medical, which has been two and a half times higher,” Steve Wojcik, vice president of public policy at the National Business Group on Health (NBGH) told HealthPayerIntelligence.com.

A study conducted by Mercer in 2015 found that only 44 percent of excise tax-eligible plans in larger companies had an actuarial value (AV) of 90 percent or above. Most of the plans had an actuarial value of 80 to 89 percent—which would be considered the equivalent of a Gold plan. However, over one in ten have an AV equivalent to the lowest tier of plans on the exchange—either silver or bronze-level plans.

“AV reflects benefit richness but not underlying network design, care management, or wellness programs that can be highly effective in controlling costs,” according to a fact sheet compiled by the Alliance to Fight the 40.

The tax will hit employers with large populations of disabled workers, individuals with high-cost treatments for diseases such as cancer, and larger families. Locations would also impact how much employers get taxed for high-cost health plans.

Though the tax—which Wojcik calls the “new class tax against working class families”—would not go into effect until 2022, the law has already negatively affected employers and employees, Wojcik says.

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“That's been a major source of uncertainty facing employers as they plan their healthcare strategies for the future and design health benefits for their employees,” he explains.

The best way for payers to support employers as they and their employees face this period of uncertainty would be to actively assist in repealing the tax, Wojcik said.

Two major payers—Blue Cross Blue Shield Association and Cigna—as well as America's Health Insurance Plans (AHIP) sought to answer employers’ needs by joining the Alliance to Fight the 40, a coalition of healthcare industry leaders that oppose the tax.

“Our focus is to make sure that employer-sponsored health care coverage that helps nearly 200 million Americans get healthy and stay healthy remains as an effective and affordable option,” a representative at Cigna told HealthPayerIntelligence.com. “At the request of our clients, we continue to advocate for the value of employer-sponsored health coverage and the value that Cigna brings to clients, customers and patients.”

Going forward, employers hope to see payers continue to “support policy changes that reduce wasteful spending by providers and policies that support alternative payment and delivery models in Medicare and the private sector,” Wojcik said.

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Legislatively, the NBGH wants Congress and the administration to control the supply side of healthcare by fixing Medicare and Medicaid overbilling, supporting alternative payment models and delivery mechanisms, pursuing antitrust action to discourage provider consolidation, lower prescription drug pricing, and enacting healthcare legal reforms that compensate for providers’ attempts to protect themselves from lawsuits.

These legislative actions would be more effective ways for Congress and the administration to address these issues, instead of taxing employees and employers on health benefits, Wojcik says.

Wojcik expressed confidence that the tax would be repealed when it reaches the Senate and Matt Eyles, president and CEO of America’s Health Insurance Plans (AHIP), shared Wojcik’s optimism in a press release.

“We applaud the House of Representatives for the overwhelming support to repeal the harmful 40 percent excise tax on health care. This bipartisan solution will help lower deductibles, improve health care access and make coverage more affordable for hundreds of millions of hardworking Americans. We urge the Senate to follow suit and pass this bill to improve health care affordability for every American.”