NCPA - National Center for Policy Analysis

Cadillac Tax Will Hurt Employees

November 18, 2014

Obamacare's "Cadillac tax" will soon hit American consumers -- even those who do not have high-value health coverage, says Tevi Troy, president of the American Health Policy Institute.

The Cadillac tax is a tax on high-value insurance plans. Starting in 2018, employer plans worth more than $10,200 (or $27,500 for families) will be hit with the 40 percent Cadillac tax. That tax, while it's technically on employer insurance plans, is ultimately a tax on people, says Troy. In a study with economist Mark Wilson, Troy showed how employers will pass on the costs of the tax:

  • Large employers hit by the Cadillac tax will pay more than $2,700 per employee annually starting in 2018.
  • Seventeen percent of all businesses and 38 percent of large employers will be hit with the tax in 2018.
  • To escape the tax, many employers will reduce the health care benefits that they provide to their employees, in order to lower its value and avoid being hit by the tax.
  • If those employers reduce health benefits without increasing monetary compensation, their employees will effectively lose up to $6,150.
  • If those employers reduce health benefits while raising monetary compensation to make up for the benefit loss, employees will face higher taxes (at an average of $1,050), despite receiving the same level of compensation.

The notion that the Cadillac tax will only affect the highest-value plans is incorrect, says Troy. By 2031, he estimates that average family insurance plans will be hit with the excise tax.

Source: Tevi Troy, "Another ObamaCare Deception," Wall Street Journal, November 16, 2014. 


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