Since the delay of the Affordable Care Act’s (ACA) “Cadillac Tax” provision, which was passed on December 18, 2015, some may be wondering how the ACA will be funded until 2020. I do not believe we have been given the answer.
The Cadillac Tax was to be imposed as a means of funding the ACA by penalizing employers for offering high-cost employer sponsored health insurance plans to employees. One must take into consideration that with continued double-digit healthcare premium increases, the so-called “high cost” plans are not so far-fetched for many more employer sponsored plans in the future. The Cadillac tax was also to double as an incentive for plan sponsors to look at less expensive plan alternatives by the time the tax would be imposed, which is now 2020.
The tax, were it not delayed, would have assessed a penalty of 40 percent for plans costing an employee more than $10,200 annually, and family plans costing an employee $27,500 annually. I have little doubt that the craftsman of the ACA actuarially assumed there would be more employers subject to penalties in future years, despite most efforts to curb premiums.
But because the tax has been delayed, questions about how the ACA will be funded until 2020 have arisen. While still some plan sponsors speculate about whether the ACA will ultimately be repealed, others are still preparing for 2020 by attempting to provide affordable plan options for their employees. This is and will become increasingly more difficult due to spiraling health care costs and corresponding premiums. I have heard it asked many times: “How much more can I impose on my employees?” Add to that concern the even greater Rx inflation due to new and very expensive drugs coming to market for Hepatitis C, rheumatoid arthritis and cholesterol.
Though there have been no definitive plans announced to supplement the funding that would have resulted from the Cadillac Tax, other taxes and fees have been responsible for the partial funding of health care reform, some paid by individuals, others paid by employers, including numerous taxes on medical device manufacturers, indoor tanning services, charitable hospitals that fail to comply with Obamacare requirements, brand name drugs and health insurers. Other fundraising for the ACA comes through the elimination of tax deductions for certain drug coverage and tax increases for those with a certain income threshold.
Since the ACA’s emergence, we have read about failed state exchanges, bankrupt cooperatives, and the significant losses the major insurance carriers have incurred participating in the federal exchanges. We have also seen the failure of the government to pay the subsidies to insurance carriers in the timely fashion promised and expected. With the various delays and elimination of ACA funding clauses, we all must wonder where the money to pay for ACA will ultimately come from. Does everyone have a mirror?
According to an article by Reuters with information from the Congressional Budget Office, U.S. taxpayers will ultimately be responsible for $660 billion this year alone as a subsidy to those receiving health insurance under the age of 65. Those figures are expected to rise to $1.1 trillion over the next decade.
The burden will not only fall on the backs of the consumer, but on employers that want to help lift the burden of the high cost of health care. And, providing major medical insurance might not be enough in today’s environment. Ultimately, it will come down to employers educating themselves on the most effective strategies and seeking the guidance from benefits brokers to come up with creative, alternative solutions that will make it easier for employees to live healthy lives.
As the lifespan of the ACA remains undetermined, employers need to educate and prepare as best as possible. Uncertainty, especially with the election around the corner, will be a key theme the rest of this year, particularly in the health care realm.
So, the question remains: Will the ACA keep fighting the good fight going forward, or will it crumble under pressure?
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