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The Affordable Care Act is now the law of the land. But some of its provisions are so flawed that they actually undermine key objectives of the law, which if the name is to be believed, include providing affordable health coverage to more Americans. That’s why the 40% excise tax that penalizes employers for providing high-value coverage, resulting in higher costs for patients, is a head-scratcher.
Beginning in 2018, a 40% tax will be applied to the value of employer-sponsored health care plans that exceed a threshold of $10,200 for individuals and $27,500 for families. And it’s only a matter of time until this tax intended to hit high-cost group health plans takes aim at the vast majority of policyholders covered under virtually all group health plans.
Why? Because the thresholds will grow at the rate of inflation instead of the rate of health care costs. But price increases for health care have consistently outpaced the average rate of inflation across the economy. This means that over time, more and more health plans—including lower value options—will be subject to the 40% tax.
What’s at stake? Affordable health insurance for the 150 million Americans who receive coverage through their employer. Employer-sponsored health care coverage through the workforce has long been revered as the most stable, innovative, and preferred venue for individuals to obtain health coverage.
In fact, employer-sponsored coverage was viewed as so central to the current system that the authors of the Affordable Care Act chose to build on it by requiring all employers with 50 or more employees to provide minimum value coverage to their employees and dependents or face a penalty. But under the 40% excise tax, the very same employers will face a penalty if that mandated coverage exceeds the inadequately indexed dollar thresholds. Damned if they do, damned if they don’t.
Unfortunately, it’s the employees who will ultimately pay—either through lost coverage options or higher costs. To avoid or minimize the impact of yet another tax stemming from the health care law, many employers have no choice but to consider raising deductibles or other cost-sharing provisions, implementing a consumer-directed health plan in lieu of the employer-sponsored coverage many workers are accustomed to, or dropping high-value plans. And if that doesn’t shield them from the costly tax, they could resort to more drastic measures, like eliminating coverage altogether.
The 40% tax on health care plans is yet another example of how the Affordable Care Act has failed to curb rising costs. It may be the law of the land, but if this provision is allowed to stand, it will only push costs higher—and it will steadily unravel employer-sponsored coverage, the backbone of our system.