‘Cadillac Tax’ in Health Plan Would Hit Middle
Class Hard
Jim Huber, 59, calls himself “a union dirt
guy.” He has worked in the same
Maryland steel mill for 41 years, where
his father and grandfather worked before
him and where his son now works, too.
Huber makes a base salary of $42,000
per year as an electrician in the plant. He
drives a Ford pick-up truck and lives in a
row house across the street from the
house where he grew up. Although he
had hoped to retire from the mill years
ago, a bankruptcy at his company
slashed his pension by more than half. “It
looks I won’t get out of here until I’m 65,”
he said.
Huber, who is also a United Steel
Workers benefits representative, said that
based on the health benefits they receive,
he and every worker at his plant would be
hit by the excise tax on insurance
companies now moving through the
Senate as a part of health care reform.
“The government is going to put together
a plan of health care for everyone, but
they can’t tax the guy that’s pulling the
cart.” he said.
The levy has been dubbed the “Cadillac
tax,” but research shows it would likely
affect a broad swath of Americans
regardless of their income, which could
indeed amount to the tax on the middleclass
that President Obama promised
would not happen under his
administration. The tax is a growing
source of anxiety for Huber and his coworkers,
but also for Democrats in the
House, who vow to strip the measure out
of the bill in conference or consider
bringing the bill down altogether.
The confusion surrounding the tax comes
from its complexity and the luxury car it is
named for. When President Obama first
raised the idea of taxing insurance
companies this summer, he framed it as
one way to get Wall Street executives to
pay their fair share. Obama told PBS’ Jim
Lehrer he wanted to target “super, goldplated
Cadillac plans.” Days later,
Obama’s senior adviser David Axelrod
told The New York Times the
administration wanted to tax benefits “like
the ones that the executives at Goldman
Sachs have, the $40,000 policies.”
At the time, Obama said he did not want
the tax to hit middle-class families, but
when the bill emerged from the Senate
Finance Committee in September, it
proposed charging insurance companies
and a 40 percent excise tax for high-dollar
— but not exactly gold-plated — plans.
The bill now calls for the tax to apply to
plans exceeding $8,500 for individuals
and $23,000 for families, for the cost of
combining health savings accounts,
medical, prescription drugs, dental, vision,
etc. The tax is charged to insurance
companies, but it is widely assumed they
would pass it on to employers.
Despite the politically powerful unions that
oppose it, the tax is enormously attractive
to government economists because it
both raises revenue — $149 billion over
10 years — and should depress the rate
of health care inflation by discouraging
companies from offering more generous
health plans. The Joint Committee on
Taxation and the CBO credit the tax as
the largest factor in “bending the cost
curve” and cutting the federal deficit, as
the Senate bill is expected to do.
Christina Romer, a senior economic
adviser to the president, predicted in
October that the tax would encourage
“both employers and employees to be
more watchful health care consumers.”
But research released last week by
Mercer, an employee benefits consulting
firm, showed that in addition to
considering lower-cost plans, two-thirds of
companies polled said they would also
raise health care costs for workers
through higher co-pays and deductibles,
regardless of whether the employee is a
CEO or a line worker at a factory.
Beth Umland, the research director for
Mercer, explained that although the
“Cadillac tax” is targeted at high-dollar
plans, the cost of insurance plans is
primarily driven by the age, gender,
health and location of a company’s
workers, not the lifestyle they enjoy.
“Plans that trigger the excise tax are not
necessarily generous plans,” she said.
“Small employers offer significantly lessgenerous
plans than large employers, but
just as many small employers are going
to trigger the tax.” Plans for workers in
dangerous professions, like steelworkers,
also have higher-cost plans because they
experience more work-related health
problems.
Umland also said that the tax would apply
to about 20 percent of companies when it
is implemented in 2013, and would apply
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