The so-called Obamacare Cadillac Tax is scheduled to begin on January 1, 2018. It is a 40% non-deductible tax on the cost of medical insurance plans that exceed "predetermined thresholds". The "predetermined thresholds" will be determined by government appointees.
The Cadillac Tax is supposed to raise $80 billion over ten years to finance the expansion of health coverage. The reality is that the Obamacare Cadillac Tax will ultimately diminish the quality of medical insurance coverage for tens of millions of Americans because no entities will be able to afford to pay it. The cost of the tax is beyond what any for-profit or non-profit entity will be able to pay their employees. Employers are already informing their employees that their medical insurance programs will be shrunk to avoid the Obamacare Cadillac Tax.
Who will have reduced medical insurance coverage? Anyone with a great medical plan from their employer: large employers, union members, government employees. For every $1000 of additional coverage beyond the "predetermined thresholds", the employer will be assessed a non-deductible tax of $400 and if the employer is a business, the business will be forced to earn an additional roughly $666.00 to pay for the insurance. The cost of each employee will increase by $666.00 for each $1000 his or her medical insurance costs are over the government selected "predetermined threshold". This is a huge number.
With 10,000 employees, the cost of the $1000 per employee would be a reduction of profits of $6,600,000. The $1000 number selected is an arbitrary one. CIGNA has produced a chart where the analysis of additional costs of the Cadillac Tax per family ranges from a tax of $200 per employee to $3400 per employee. If a union member is receiving the medical insurance plan shown on the CIGNA chart at the maximum end and there are 10,000 employees in the company, the company would need to earn an additional roughly $22,500,000 to pay the Obamacare Cadillac tax. These medical plans will be nothing more than an historical footnote.
The $80 billion of tax revenues will never appear. Companies as well as government entities will limit their medical insurance plans to the "predetermined thresholds". It is difficult to imagine virtually any entity continuing with any plan that results in an Obamacare Cadillac Tax. Companies will either increase medical insurance deductibles or reduce services to Obamacare required minimums, "bronze plans". Americans will see their medical expenses explode.
January, 2015 is the time for the new Republican Congress to vote to eliminate the Obamacare Cadillac Tax. Congress needs to protect working Americans. The Republicans should let the Democrats know that if they do not override the expected veto from the President, no bill to eliminate the Cadillac Tax can be expected until either there is a Republican President or the Cadillac Tax goes into effect in 2018. Democrats get one chance to protect their constituents.
The Democrats should understand the risk of having the Cadillac Tax in place for both the 2016 and 2018 elections. The unions, including government unions, will understand by November, 2016 that their health plans are going to be destroyed. If Democrats want to set the table for Republicans by voting against repeal of the Obamacare Cadillac Tax, they will do so at their own peril.