While campaigning for the White House, President Obama promised to cut taxes for 95 percent of Americans. As he put it, In an economy like this, the last thing we should do is raise taxes on the middle class.
And then, the president went ahead and raised taxes on the middle class, thanks to Obamacare. Starting in 2018, Americans with high-cost health insurance through their employers will have to pay a 40 percent excise tax on their policies.
The intent of this so-called Cadillac tax was to discourage people from selecting costly insurance policies. But the rest of Obamacare with its many mandates certainly does its darnedest to raise the cost of insurance.
So Obamacare may require ordinary Americans to pay ever-greater sums for health insurance and then penalize them for following the law.
The Cadillac tax will apply to employer-sponsored policies with premiums higher than $27,500 for a family or $10,200 for an individual. Anything beyond those thresholds gets hit with the 40 percent levy.
Proponents of the tax believe that high-cost plans dont deliver enough value in the way of better health for their high price tag.
As the president put it, Taxing Cadillac plans that dont make people healthier . . . thats actually a good idea . . . [t]hat helps to reduce the cost of health care over the long term.
But President Obama and his allies misled the public by claiming that the tax would only affect gold-plated health plans.
Lawmakers indexed the tax to the overall inflation rate, even though medical inflation has historically been much higher. Over the past four years, for example, employer premiums have risen an average of 5.2 percent a year, while general inflation has been less than 2 percent.
This disparity will naturally lead to more Americans paying the tax. The inexorable increase in health care costs will eventually cause Chevrolet benefit plans to be taxed as Cadillacs, concludes a new report from the American Health Policy Institute. The study estimates that the average family health plan will be subject to the levy by 2031.
Team TISI -5.22% Obama also misled the public by selling the Cadillac tax as one on expensive insurance plans rather than people. Indeed, as Obamacare architect, MIT economist, and current Democratic pariah Jonathan Gruber said in 2011, We all know its a tax on people who hold those insurance plans.
Companies affected by the Cadillac tax will simply pass the cost along to their employees.
The AHPI study found that the tax will affect 17 percent of all businesses and 38 percent of large employers in its first year. These larger companies will pay an average of $1 million in 2018 and an average of $2.1 million per year from 2018 to 2024. Thats over $2,700 per employee per year.
As a result, four in five large employers are changing their health plans. Some are requiring greater employee cost sharing, while others are removing dental and vision benefits.
In some cases, theyre replacing their generous health plans altogether. For their employees, that decision amounts to a pay cut of up to $6,150, according to AHPI.
Of course, companies could increase workers taxable income to make up for this effective cut in their compensation. But if they were to do so, employees would be subject to additional payroll and income taxes. According to the AHPI study, some 12 million workers would face an additional $1,050 in taxes every year.
The government is counting on employers to try to dodge the Cadillac tax. The Congressional Budget Office expects the tax to raise $120 billion between 2018 and 2024 25 percent of it directly and 75 percent from increases in payroll and income tax revenue.
But the Cadillac tax may not be the cash cow the CBO is projecting it to be. If employers cut their excise tax exposure by 50 percent but only increase taxable wages by 30 percent, AHPI projects that the tax will raise just $42 billion from 2018 to 2024 about a third of the CBOs estimate.
That would be a problem for the Administration. Its counting on the Cadillac tax to cover almost a quarter of Obamacares promised deficit reduction over the next decade.
In other words, if the Cadillac tax succeeds in its objective of dissuading employers from providing high-cost coverage, Obamacare will be short tens of billions of dollars money that future generations of taxpayers will eventually have to come up with.
Of course, Congress can render all these calculations moot by simply repealing the Cadillac tax altogether. They have four years to do so and Obamacares namesake can only frustrate their ambitions for two more.