A numbers game: Employers need ‘Cadillac Tax’ relief

This week, politics temporarily gave way to the previous national pastime as Major League Baseball’s All-Star Game rolled into Washington, D.C.

The midsummer classic is always a good time for players and teams to consider where they are and where they are going. It is also true for health-policy wonks trying to see a way forward for important legislation. 

{mosads}One thing Congress and baseball have in common is a reliable measure of success: The magic number 300. For position players, batting .300 is a barometer of excellence. For pitchers, 300 wins is a virtual ticket to the Hall of Fame. For legislation, 300 co-sponsors in the House of Representatives is evidence of common-sense policy.

Not only does 300 congressional cosponsors suggest broad consensus, it demonstrates a degree of bipartisanship that is astonishing in today’s environment, particularly on the subject of health care. 

The Middle Class Health Benefits Tax Repeal Act (H.R. 173) has now crossed that 300-cosponsor threshold, with lead sponsor Mike Kelly (R-Penn.) declaring he will “keep pushing this ‘Cadillac’ to the junkyard — where it belongs.” The bill would permanently repeal the “Cadillac Tax,” a vestigial revenue raiser for the Affordable Care Act.

Baseball is a game of statistics, so here are some numbers:

The so-called “Cadillac Tax” would impose a 40-percent tax on the value of employer-sponsored health coverage that exceeds certain arbitrary cost thresholds. Employer plans affected by the tax will be forced to provide health plans with fewer benefits and higher deductibles — which have already risen 176 percent since 2006.

While the name suggests that the tax would only apply to a few individuals with “luxury” health coverage, its actual design and rising health costs ensure that more and more Americans will be affected by it every year. A conservative estimate from Mercer indicates that over half of all companies will be subject to the tax by 2027. 

The Cadillac Tax is most likely to penalize older workers and those with family coverage, women, part-time workers and those suffering chronic conditions or catastrophic health event, or who live in communities with especially high costs.

According to Mercer estimates, employers expected to hit the tax have employees that are two years older and 5-percent more female on average, and have a 3-percent higher rate of dependent coverage while being 12-percent more likely to offer part-time coverage.

It should also be noted that voters understand that while the tax is aimed at their employers, they too will feel the impact. In a nationwide poll by Public Opinion Strategies, when voters were asked if they agree more with proposals to repeal or implement the tax, two-thirds favor repeal.

Despite widespread agreement on the flaws of the Cadillac Tax and the need to repeal it, progress has been as slow and wobbly as a knuckleball. While opponents of the tax have successfully delayed its implementation from 2018 to 2020 to 2022, the looming imposition of the tax stifles employer plans, like the threat of a pickoff throw makes a baserunner think twice. 

Much has been made about baseball’s “Moneyball” revolution, which is based on the principle that unconventional thinking can produce astonishing results. Conventional wisdom suggests that taxing employer health plans will lower costs.

But a simple look at the numbers tells us that it will only shift costs to many of the 178 million people covered by these plans.

Employer coverage works, but every moment that passes with the Cadillac Tax on the books is a step closer to blowing the game. Congress needs to bring in the closer, repeal the tax and save the game.

Jim Klein is president of the American Benefits Council, a trade association based in Washington, D.C. representing primarily Fortune 500 companies that either sponsor or administer health and retirement benefits covering more than 100 million Americans.