If the 2016 election is not the defining moment we expect for health reform, 2018 may force the issue.
Learning an important lesson from the legislative failure of Hillarycare, the drafters of the Affordable Care Act (ACA) phased in early many of its most popular features, such as its Medicaid subsidies to states, and allowing adult children to remain on their parents’ insurance well into their 20s. It back-loaded the necessary price to keep the bill close to deficit neutrality, which was a political imperative. These bills start coming due in the second half of the 2010 decade.
The element that has received the most political attention is the “Cadillac tax.” In order to raise the added revenue necessary to cover the ACA’s cost, several new or expanded taxes were incorporated. Some, like a surtax on investment income, had no particular relationship to health care. Others, like a tax on medical devices and on especially generous insurance plans, arguably had some health policy rationale. This last mentioned became known as the “Cadillac tax.”
A basic theme of this book has been that consumers who are shielded from the economic impact of their choices make worse choices. Over the decades, many labor unions have negotiated generous benefits packages for their members, with employees responsible for minimal premiums or deductibles. Many companies have offered similar perks to their executives. The Cadillac tax imposes a surcharge on plans whose costs exceed a threshold, roughly $10,000 per covered individual. Its primary goal was revenue-raising, but a side effect is to discourage such destructive plans. The tax, which is not deductible as a company expense, enters into force in 2018.
Unfortunately, this denial of employer tax deductibility, although a step in the right direction, applies to all employer health expenses above the threshold—including employer incentives for employees to enroll in high deductible plans. Likewise, small employers who offer employees stipends in lieu of insurance cannot deduct the cost of above-threshold stipends.
As mentioned, the largest group of insured individuals who will be subject to the Cadillac tax are union members, a core Democratic constituency. This has led to jockeying among Democratic presidential candidates who are generally stalwart supporters of the ACA, like Hillary Clinton, to propose the tax’s abolition. This may be an area of rare bipartisanship: a suspension of the tax is being mooted in Congress as we write. But repeal of the tax without a replacement policy will have two deleterious effects. It will raise the ACA’s long-term cost significantly, and it will remove a valuable prod toward greater consumer exposure to the consequences of their decisions.
The ACA has so many parts that it is likely more hidden problems will be found in coming years. But since the bitter medicine (taxes and restrictions) was delayed and the sweet subsidies were front-loaded, these problems are surfacing in political circles only slowly. For those that do not gain traction by the 2016 election, they will present a campaign opportunity for congressional candidates running in 2018.