What Is Obama’s Cadillac Tax? A 40% Tax on Luxury Healthcare Plans

The Affordable Care Act (aka “Obamacare) was created with the intent to bring quality, affordable healthcare to all Americans. The ACA has survived years of criticism, attacks, and even a high-profile challenge in the Supreme Court.

One controversial component of the ACA scheduled to take affect in 2018 is known as the “Cadillac Tax.”

The Cadillac Tax: An Attempt to Tax Luxury Health Benefits

“It is difficult to get a man to understand something, when his salary depends on his not understanding it.” – Upton Sinclair

Unless you’re a high-paid executive at a health insurance company, you’ll likely agree that our healthcare system is broken. The “Cadillac Tax” aims to address what some see as a major problem in the system: people over-use their healthcare plans because it’s “free.”

If you’ve been to an all-you-can eat buffet, you’ll probably agree that the system is terribly wasteful. In fact, I was just at a Chinese buffet last week, and most of the plates I saw being cleared off tables were filled with uneaten food, with customers going back for third and fourth helpings.

Hey, it’s not costing me any more money, right?

Some politicians believe that when workers are offered an “endless buffet” of healthcare coverage, they will be wasteful as well. The Cadillac Tax is an attempt to tax luxury employer-provided healthcare plans that encourage over-usage by offering more coverage than needed.

What is the Cadillac Tax, and How Much Is It?

“I know some folks say, it’s too big, it uses too much gas
Some folks say it’s too old, and that it goes too fast…
Anyway we don’t have to drive it, honey, we can park it out in back And have a party in your pink Cadillac.” – Pink Cadillac, Bruce Springsteen

Led by a bi-partisan effort by Reps Joe Courtney (Democrat, Connecticut) and Frank Guinta (Republican, New Hampshire), the Cadillac Tax is a 40% tax on employee health benefits above $10,200 for individuals, and $27,500 for families.

Those numbers are just about double what the average employer pays towards benefits each year (Companies paid an average of $4,750 of the $5,600 total average premiums for individuals, and $10,120 of the $15,300 total average premiums for family coverage in 2013)

So, it sounds reasonable to tax excessive money going into the system, but what if the system itself is still broken? (why tax the car when the roads are buckling?) Also, why are Americans so expensive to insure in the first place?

Here’s what might cause the Cadillac Tax to be a lemon:

The Cadillac Tax Will Affect 50% of Businesses

According to a recent survey by benefits consultant Towers Watson, the Cadillac Tax could be triggered in half of all businesses; that’s a lot of extra taxes that further increase the cost of paying executives without addressing the efficiency of the actual healthcare system.

Decreased Benefits Will Not Increase Worker Pay

Advocates of the Cadillac Tax claim that after employers reduce health care costs by switching to cheaper plans, they will pass the savings on to workers in the form of higher salaries. (Ever hear of “trickle down economics?”)

Corporations are money-making machines that have no conscience, and as a rule they don’t just release money out of fairness or good will. While the Cadillac Tax will cause many corporations to scale down their plans, there is no evidence that this savings will be passed on to employers.

Decreased Benefits Could Actually Increase System Costs

Although you can argue that some employees over-use their luxury health benefits, reducing coverage may cause employees not to visit doctors when they have potentially serious health issues.

In other words, someone with ongoing symptoms may wait much longer to see a doctor if they have to pay out of pocket costs. An untreated illness will be much more expensive to treat further down the road.

The Heath Care System is Still Broken

As with any ideas that originate in the government, there is some head-scratching with the Cadillac Tax as well.

The U.S. led the world in per capita health care spending with a whopping $8,745 per person, (Turkey comes in near the bottom at about $950) while the CEO‘s of top health insurance companies all make over $10 million per year.

In fact, the cost of healthcare has risen 90% in the last 8 years, while employee wages haven’t budged.

America also is the most obese country in the world, with a third of it’s citizens considered obese, which leads to serious, and expensive, health problems like diabetes and heart disease.

The Cadillac Tax: Treating the Symptoms, But Not Trying to Find a Cure

Will a tax on the driver’s car fix the fact that they are obese, underpaid, and being charged $6/ gallon for gas? No matter how much you cut back on health insurance, it doesn’t address these root problems.

As long as the CEO’s of healthcare companies are going on golf outings with politicians, and people are drinking 32 ounce sodas, we probably won’t get truly affordable healthcare. In my humble opinion, the Cadillac Tax is another example of treating symptoms instead of finding a cure.

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