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Many Companies Begin Slashing Benefits to Avoid Obama Health Law So-Called Cadillac Tax, Signaling the Beginning of Broader Cuts for All Plans

by | Jul 31, 2013

By Jennifer Popik, JD, Robert Powell Center for Medical Ethics

Pro-abortion President Barack Obama

Pro-abortion President Barack Obama

As companies are planning their benefits for the coming year, one controversial part of the 2010 Obama Health Care Law (“ObamaCare”) is again making headlines.  A measure known as the “Cadillac Tax” was included in the 2010 Health Care law partly to derive tax revenue meant to help pay for the health restructuring, but primarily was included to reduce what Americans spend on healthcare.

Why might the plans become few and far between? Starting in 2018, there will be a 40% tax on generous employee benefits, on the theory that overly generous plans boost medical costs. The anticipation of this tax is already beginning to have an effect on the plans companies offer.

This so-called “Cadillac Tax” provision does not stand in isolation from the remainder of the 2010 health care law.  At the heart of the law is the notion that health care costs rise too fast and that if Americans would just spend less money on health care, then the whole system would somehow benefit.

There is serious concern that soon these plans will be extinct. And as we shall see below, although routinely vilified, the loss of these plans would be very hurtful.

As Reed Abelson of the New York Times wrote in an article titled, “High-End Plans Scale Back to Avoid ‘Cadillac Tax,’”

“Companies hoping to avoid the tax are beginning to scale back the more generous health benefits they have traditionally offered and to look harder for ways to bring down the overall cost of care…The percentage of employers revising their plans as a result of the tax has increased to 17 percent this year from 11 percent in 2011, according to a survey of United States companies released this month by the International Foundation of Employee Benefit Plans. Although the tax does not start until 2018, employers say they have to start now to meet the deadline and they are doing whatever they can to bring down the cost of their plans.”

One major employer in Minnesota has recently joined the ranks of those companies who are scaling back their plans.  Catharine Richert of Minnesota Public Radio wrote

“The University of Minnesota is considering changes for 2014 that would increase copays for primary and specialty care, require employees to pay deductibles, and establish a cheaper, but more limited plan for Twin Cities area employees, among other things.”

University human resources vice president Kathy Brown estimated their tax liability would be $48 million dollars, unless they implemented the cutbacks.

With more employees reducing membership in these generous plans, Steve Wojcik, Washington-based trade group represents employers such as Wal-Mart Stores Inc., American Express, and Target Corporation recently told Bloomberg, “I don’t think there’s any employer that’s going to pay the tax.”

This will mean that these generous plans will begin to become extinct.

Despite an attempt to vilify these plans, the fact is that these so-called “Cadillac” Plans are ones that enable people to have freer access to life-saving medical treatments and procedures that a doctor and patient deem advisable to save that patient’s life or preserve or improve the patient’s health.  These were plans that were used to attract employees, and ones that both employers and employees deemed worthwhile and valuable.

While Americans would prefer to spend less on health care, as with anything else, the notion that Americans will actually be prevented from spending their money on health care would undoubtedly not sit as well.

Another major, similarly-aimed provision, the Independent Payment Advisory Board which starts in 2015. The IPAB  will have power not only over generous plans, but ALL plans.  In addition to having authority to limit Medicare reimbursement rates, IPAB will also have a key role in suppressing nongovernmental health care spending.

IPAB is instructed to make recommendations to limit what all Americans are legally allowed to spend for their health care so as to hold it below the rate of medical inflation through 2017, and thereafter to the per-person growth in the Gross Domestic Product plus one percent.

The health care law authorizes the Department of Health and Human Services (HHS) to implement IPAB’s recommendations by imposing so-called “quality” and “efficiency” measures on health care providers, limiting what treatment doctors are allowed to give their patients. (Documentation can be found at

What happens to doctors who violate a “quality” standard by prescribing more lifesaving medical treatment than it permits? They will be disqualified from contracting with any of the health insurance plans that individual Americans, under the 2010 law, will be mandated to purchase. Few doctors would be able to remain in practice if subjected to that penalty.

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This means that treatment a doctor and patient deem advisable to save that patient’s life or preserve or improve the patient’s health — but which exceeds the standard imposed by the government — will be denied even if the patient is willing and able to pay for it.

While Congress contemplates possible action on restoring the cut to oncology clinics, patients are having critical treatment delayed and disrupted.  Americans in all medical settings can expect these kinds of cuts starting after 2015 thanks to the IPAB, which is at the heart of the 2010 health care law.

From the same New York Times article, Jonathan Gruber, the M.I.T. economist who played an influential role in shaping the law, noted that the Cadillac Plan provision was working saying, “It’s really one of the most significant provisions” and that “It’s focusing employers on cost control, not slashing.”

Between the Cadillac Plan provision and the IPAB, Americans can expect that generous plans that allow more access to healthcare will begin to disappear.  And we are only in the beginning phases.

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Categories: ObamaCare