What Can We Expect from the “Cadillac Tax” in 2018 and Beyond?

Abstract

What Can We Expect from the ''Cadillac Tax'' in 2018 and Beyond? One controversial aspect of the Patient Protection and Affordable Care Act is the provision to impose a 40% excise tax on insurance benefits above a certain threshold, commonly referred to as the ''Cadillac tax.'' We use the Employer Health Benefits Survey, sponsored by the Kaiser Family Foundation and Health Research and Educational Trust, to examine the number and characteristics of plans that likely will be affected. We estimate that about 16% of plans will incur the tax upon implementation in 2018, while about 75% of plans will incur the tax a decade later due to the indexing of the tax thresholds with the Consumer Price Index. If the Cadillac tax is ultimately implemented as written, we find that it will likely reduce private health care benefits by .7% in 2018 and 3.

A Kinked Health Insurance Market: Employer-Sponsored Insurance under the Cadillac Tax

“…Variation in this parameter may produce heterogeneous responses to the imposition of the Cadillac tax. Herring and Lentz (2012) estimated that the Cadillac tax would raise $376 billion through 2025, 59.08 percent of which would come from direct revenue. We suspect that the difference in total tax revenue compared with our estimate arises from revised growth estimates since their research was published in 2012, particularly decreased premium growth.…”

“…Historically, the CPI has tended to increase at a slower rate than employer premiums (Executive Office of the President of the United States 2013). This implies that the Cadillac tax will become more stringent over time as more health insurance plans exceed the Cadillac tax's thresholds (Herring and Lentz 2012).…”

Private Health Insurance Exchanges: Early Evidence and Implications for the Future

“…estimate that, if all employers offered a 90-percent AV plan, about 25 percent of employers would incur the tax by 2024. These estimates differ from estimates previously published by Herring and Lentz (2011) because our analysis is at the employer level, rather than the plan level, and because our analysis incorporates CBO's most recent expectations about health care cost growth (Herring and Lentz 2011 Because a nontrivial number of employers could hit the Cadillac tax if they maintain the generosity of current coverage, we assessed the implications for workers if they enrolled in a plan that was just under the Cadillac tax limit in 2020. If employers offered multiple plans on private exchanges, this type of switch could be driven directly by workers, might may prefer a less generous plan rather than face higher premiums under the Cadillac tax.…”

Quantifying Overinsurance Tied to the Tax Exclusion for Employment-Based Health Insurance and Its Variation by Health Status

“…With the House of Representatives recently voting to repeal the Affordable Care Act’s “Cadillac Tax,” more formally known as the High-Cost Plan Tax, future policymakers may start considering alternative approaches to reforming the employment-based tax exclusion, such as capping the exclusion at a certain percentile, converting the exclusion to a system of refundable credits, or perhaps eliminating the tax exclusion altogether. Most simulation analyses of such reforms to the employment-based tax exclusion, such as Bradley Herring and Lisa Lentz, 7 the Congressional Budget Office, 8 or Charles Phelps and Stephen Parente, 9 focus on expected changes in health care spending resulting from reform, generally relying on elasticity estimates from the literature, such as Jonathan Gruber and Michael Lettau’s analyses of the association of health plan generosity with the employment-based tax exclusion. 10 In contrast, our analysis presented here expands on those types of simulation analyses by examining changes in expected utility.…”