Dive Brief:
- The controversial so-called "Cadillac tax" has been viciously scrutinized since it first emerged as part of the Affordable Healthcare Act in 2010. It's been delayed and changed, but as of right now, the 40% surcharge on high-cost healthcare plans is set to happen in 2020.
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Mark Thoma, a macroeconomist at the University of Oregon, wrote a detailed analysis of why the tax is so controversial, basically laying out all the pros and cons as part of CBS News Moneywatch.
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Thoma writes that while many special interest groups either despise or distrust the provision, the only group solidly behind the tax is economists, who dramatically favor the tax according to a poll.
Dive Insight:
The tax was intended to raise revenues to help fund the ACA. It was also designed to offer an incentive for employers to reduce their healthcare spending, making it a cost-control measure too.
The support the excise tax receives from economists is primarily based on the differential tax treatment of employer spending on wages and health benefits, Thoma says. By levying a 40% tax on high-cost health plans, one outcome may be to shift employer spending from healthcare to wages. As this happens, spending on healthcare also will fall, the theory goes.
Thoma's main concern is that employers will substitute less effective, lower-cost plans or make other changes to cut health insurance costs, but wages won't rise as much as promised.