The Cadillac Tax is Raising Deductibles

May 27, 2015

At Vox, Sarah Kliff has a piece about the trend of rising health insurance deductibles. She writes: "Your employer's health insurance costs are going down. But yours are going up. The higher deductibles are part of a larger trend happening in the health insurance market right now: employers increasingly shifting the burden of paying for health care to workers."

Curiously, she does not posit any particular cause for the phenomenon. This article from the Wall Street Journal may be of assistance. It covers the "Cadillac Tax" imposed by the Affordable Care Act, which taxes employee health benefits above a certain threshold. The Journal spoke with a business manager who was adjusting to the new tax:

Waste-management company Action Environmental Group, based in Teaneck, N.J., could face a $400,000 bill from the government for triggering the tax, based on coverage it provides for 350 of its employees and their families.
“To me it’s a penalty for giving our employees a generous benefits package,” said Chief Financial Officer Brian Giambagno.
Later on, the Wall Street Journal article offers an explanation on how businesses are handling the new tax:
To avoid the tax, or lessen its bite, many companies intend to move to high-deductible health plans that require their employees to cover significantly more expenses out of pocket before insurance coverage kicks in.
It seems like the Wall Street Journal is describing precisely the reason behind the trend Vox is observing: a move towards high-deductible health plans. (Vox describes them as "getting crummier.") A complete coverage of the trend should probably include the Cadillac Tax, so its absence in the Vox piece is very curious.
Whether or not the Cadillac Tax is sound policy is a matter for reasoned debate. We are somewhere in between on the issue. There is some legitimate reasoning behind it, but it could be designed better. The reasoned debate should happen, though, including and especially when the obvious effects of the tax become apparent.

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