Ortiz: The Cadillac Tax on Buick Health Care Plans

With little more than a year left in this presidential administration, the time is now to propose much-needed health care reforms that can be instituted the day the next president takes office.

Voters from both sides of the political spectrum are looking for candidates who can articulate bold new ideas about how to reform the Affordable Care Act in order to finally bring health care costs down, something that the ACA has plainly been unable to do.

A good place to start is by eliminating the so-called Cadillac tax, one of about 20 new taxes associated with the ACA. Starting in 2018, this tax imposes a 40 percent surcharge on health plans that cost more than $10,200 for an individual or $27,500 for a family. Repealing this tax enjoys bipartisan support — with unions, which traditionally have very generous health care plans, being among the tax’s fiercest opponents.

The tax was sold as a way soak the rich to pay the subsidized portion of the ACA, and as a way to keep health care costs downThe president said the tax penalizes “fancy plans that end up driving up costs.” But he and other defenders of the law have it backwards: Taxes, subsidies, and regulations distort the health care market driving costs up. This tax will simply exacerbate the financial pain that millions of Americans already feel each year from their health care bills.

The ACA requires insurance companies and self-insured firms to pay the tax, but this assertion is simply an attempt to make the tax seem less controversial. Like almost all taxes, its costs simply get passed on to the consumer — in this case the employee — in the form of higher premiums and copays as well as lower wages and benefits. According to Towers Watson benefit consultants, companies are already raising deductibles and copays or reducing coverage in preparation for the law.

This “reducing coverage” point explains the so-called cost controls promised from the tax. To the extent that costs are kept down, they are done so by rationing or even denying care in some cases. Not exactly the way most Americans want to limit health care cost inflation.

Though the tax will only affect about 10 percent of plans in its first year, the pernicious effects of sky-high medical cost inflation (at double-digits again this year) means that the tax will hit 30 percent of plans in the next 10 years. In 15 years, according to the American Health Policy Institute, the average health care plan will be subject to the tax. Another survey conducted by Mercer estimates one-in-three employers will be hit by the tax in 2018, increasing to as much as 60 percent in 2022. These costs will be passed on to employees, spiking premiums yet again and soaking the middle class!

In other words, the Cadillac tax will hit Buick health plans.

To finally address the sky-high costs of health care, policymakers must repeal the ACA’s taxes. It’s been proven empirically and intellectually time-after-time that the best way to control costs and increase access to a good or service is through a market system, free of taxes, mandates, subsidies, and other distortions. Health care is no different. Voters must demand from their candidates market-based solutions like the repeal of the Cadillac tax. The time to do it is now.

Alfredo Ortiz is President and CEO of Job Creators Network


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