The “Cadillac Tax” is a 40 percent tax on the cost of employer-sponsored coverage exceeding certain thresholds – estimated to be $10,800 for employee-only coverage and $29,100 for family coverage in 2020 when the tax goes into effect. Part of the Affordable Care Act, the tax was intended to limit “overly generous” plans and help offset other costs of the law. In reality, the tax will hit ordinary plans and most of the revenue is unlikely to be realized.

Analyzing your plan

Luxurious health plans and expensive ones are not the same thing. Often, a plan is expensive because it covers an older population, or people who are disabled or chronically ill, or simply live in areas with high costs.

“The tax is so flawed that both ardent supporters and strong opponents of the overall health law favor repeal of the tax.”

Moreover, the thresholds triggering the tax are not just based on premiums, but also the cost of flexible spending arrangements, wellness programs and clinics located on the employer’s premises. Because the tax is indexed to regular inflation, rather than the higher health cost inflation, inevitably it will pull in more plans over time.

Who’s paying?

Officially, the tax raises a lot of revenue for the federal government. But most of that money is not estimated to come from employers actually paying the 40 percent tax. Rather, it comes from the assumption that as employers reduce health benefits to avoid the tax, they will make it all up to workers in the form of higher wages. Either government officials are wrong, and therefore most of the revenue is never collected, or they are right, and the Cadillac Tax becomes a massive tax increase on working Americans.

Either way, workers will likely see dramatic increases in their out-of-pocket costs.

The tax is so flawed that both ardent supporters and strong opponents of the overall health law favor repeal of the tax. Congress and the President should listen to the diverse voices urging repeal, so the system most Americans rely upon for their health coverage is not irretrievably lost.