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Issues in Health Reform

Category: health care costs

The Cadillac Tax in the news: Update

Posted on by rriporte

UPDATE Sept 3, 2015

A new analysis by the Kaiser Family Foundation adds some detail to how employers may be affected.  A couple of points to emphasize:

  • This is a tax on employers, not employees.  Yes, there will likely be trickle down to employees in terms of higher deductibles and other cost sharing mechanisms but individuals will not see their income taxed for this.
  • Health savings and flexible spending accounts’ employer contributions are included in the maximum that an employer can spend each month before the tax kicks in.  That is, it is not just the amount paid for the insurance plan that will be used in the calculation.
  • The tax to employers is calculated per employee since the amount paid toward health care varies by employee choices.

Given the growth in health care costs the Kaiser report predicts up to 42% of all employers being affected by 2028, having at least one plan hitting the threshold after which the tax kicks in.  The threshold is $10,500 in 2018.  It will be $13,500 paid toward an individual plan by 2028.

Remember, this is an attempt to have consumers have more “skin in the game” as they make choices about their health care use.  It also is about minimizing the tax free benefit that advantages employees who get compensation as a tax exempt health benefit rather than as taxable wages.  The negotiation for this type of compensation, carried out by many unions, is the reason for union resistance to the tax.  There is little expectation that employers will give wage compensation to make up the difference if they are encouraged by this tax to scale back on benefits.

Finally, this part of the Affordable Care Act is not set to go into effect until 2018.  Expect more political discussion and debate.

July 26 posting

There has been talk about repealing the ACA’s “Cadillac Tax,” by candidate Hillary Clinton most recently. A brief by David Wessel for the Brookings Institute is an excellent and detailed discussion about what the tax is and why repealing it would interfere with the attempts to control health care costs built into the ACA.

Even more briefly:

  • The Cadillac tax is set to go into effect January 2018.
  • It does this by saying that employers who offer and pay for expensive policies (premiums costs of over $27,500 for a family, $10,200 for individual) will be taxed/fined.
  • It was intended to generate revenue and curb incentives for employers to offer very generous (and potentially inefficient plans) that have protected consumers from having more skin in the game (higher copays and deductibles). Basically, the argument is that without more costs felt directly by consumers, poor choices are made to overuse (see note below).
  • Republicans have never liked it. It contradicts their understanding of free markets, and freedom of employers. And it is part of Obamacare.
  • Democrats haven’t talked much about it until now though unions have never liked it since they have negotiated for those better health insurance benefits in lieu of wages.
  • Some say encouraging employers to renegotiate wages based on slightly less insurance benefits would be economically sound (at least it requires that those wages are taxed which gives money to support public work).

On a side note,I find lacking the argument that issue about consumers needing more skin in the game, needing to feel the expenses more directly in their pocketbooks that has fueled the whole movement to health savings accounts and stronger consumer decisions:

  • Yes, the consumer/patient makes the first decision to see a health care provider but
  • After that first decision most of the costs are generated by medical professionals telling the patient what the diagnosis is, what kinds of treatments are best, how many times she should return for visits, etc. That is, most medical costs are generated by the medical system decisions NOT consumers.

 

Delay in employer mandate may not impact number of people insured nor costs

Posted on by rriporte

NEW STUDY by Rand verifies basic findings from Urban Institute report original July 18 posting as below, THOUGH it does point to a significant loss of federal income due to expected penalties not being collected.

“In July 2013, the Obama administration announced a one-year delay in enforcement of the Affordable Care Act’s (ACA) penalty on large employers that do not offer affordable health insurance coverage. To help policymakers understand the implications of this decision, RAND analysts employed the COMPARE microsimulation model to gauge the impact of the one-year delay of the so-called employer mandate. They found that the delay will not have a large impact on insurance coverage: Because relatively few firms and employees are affected, only 300,000 fewer people, or 0.2% of the population, will have access to insurance from their employer, and nearly all of these will get insurance from another source. However, a one-year delay in implementation of the mandate will result in $11 billion dollars less in federal inflows from employer penalties for that year. A full repeal of the employer mandate would cause revenue to fall by $149 billion over the next ten years (10% of the ACA’s spending offsets), providing substantially less money to pay for other components of the law. The bottom line: The one-year delay in the employer mandate will have relatively few consequences, primarily resulting in a relatively small one-year drop in revenue; however, a complete elimination of the mandate would have a large cumulative net cost, potentially removing a nontrivial revenue source that in turn funds the coverage provisions in the ACA.”

A report issued by the Urban Institute states that “The one-year delay in ObamaCare’s employer mandate won’t have much effect on the law’s costs nor the number of people it covers.”  The report summarizes though that a change in the individual mandate will have a significant impact.  Having a parallel delay in the implementation of the individual mandate is something currently being considered by Congressional Republications, though like their attempts at full repeal of the law, it is not destined for any traction.

The analysis in the report predicts a decline from 19% to only 15% without the individual mandate, down to 10% with the individual mandate.  Without the employer mandate this model predicts the number of uninsured to go to 10.2% uninsured rather than 10.1% with the mandate. That is, the difference with or without the employer mandate is pretty insignificant in terms of impacting the numbers of newly insured.

 

Consumer savings associated with ACA

Posted on by rriporte

The Department of Health and Social Services issued some encouraging news today for consumers about savings associated with health insurance.  “Today, the Department of Health and Human Services (HHS) announces that nationwide, 77.8 million consumers saved $3.4 billion up front on their premiums as insurance companies operated more efficiently.  Additionally, consumers nationwide will save $500 million in rebates, with 8.5 million enrollees due to receive an average rebate of around $100 per family.”

This is related to the 80/20 rule where insurance companies have to spend 80% of every dollar collected in premiums on direct patient care.  If they do not, the difference is given back to the consumers as either rebates or compensation in better future benefits.