Cadillac Tax: 90% of Employers Will Take Steps To Avoid It, 19% of Employers Already Curtailing Employee Benefits, 71% Won’t Increase Wage To Offset Reduction in Benefits

October 13th, 2015

In the WSJ, Tevi Troy explains the results of a recent survey of large employers by the American Health Policy Institute. The results aren’t pretty:

According to a new study by the American Health Policy Institute, the excise tax is already forcing American employers to revisit the health care they provide to employees. Almost 90% of large employers surveyed by AHPI reported taking steps to prevent their company from having a plan that triggers the excise tax in 2018.

Nineteen percent of those surveyed—top human-resource officers at companies with more than 1,000 employees—said they were already curtailing or eliminating employee contributions to flexible-spending accounts to avoid triggering the tax. Nearly 13% were already curtailing or eliminating employee contributions to health savings accounts. Both FSAs and HSAs are popular ways for employees to cope with the increasing number of high-deductible health plans, as they allow workers to save for growing out-of-pocket health costs.

When employers respond to the tax by shrinking the value of employee health plans, that amounts to a reduction in the overall compensation package employees are getting. Supporters of the tax theorize that workers will get wage increases to offset the fact that their benefit package has been reduced. In reality, 71% of large employers surveyed by the American Health Policy Institute said they probably wouldn’t increase wages to offset their reduction in health benefits. Among the 16% of employers who said they would increase wages, their workers are not necessarily better off: Unlike the lost benefits, wage increases will be subject to income tax.

Any debate over repealing the Cadillac Tax must open up the rest of the law–without the funding, the ACA becomes unsustainable.