President Barack Obama has consistently said that Massachusetts was the template for the Affordable Care Act, often referred to as ObamaCare. So the conventional wisdom has been that the new law won’t change much here. But a new Pioneer Institute study demonstrates just how wrong the conventional wisdom has been.
Starting in 2018, the federal law includes an excise tax on your annual health insurance benefits that exceed $10,200 for an individual and $27,500 for a family plan. While stumping for the law, President Obama said the tax, which was reportedly Massachusetts Sen. John Kerry’s idea, was aimed at “super gold-plated Cadillac plans” or $40,000 Wall Street health insurance plans.
The Obama administration has done its best to highlight some of the more popular provisions of the law such as expanded preventative benefits, allowing children up to age 26 to remain on their parents insurance, and expanded contraception coverage. Yet, many of the less attractive provisions like the “Cadillac tax” have not been given a local spotlight.
Massachusetts has historically ranked at or near the top in average health care premiums. For the Bay State and other high-premium states, the “Cadillac tax” will be more like a “Ford tax.”
The tax will not discriminate and will add costs for the lower-middle class, the upper-middle class and everyone in between. Any profession that has robust healthcare benefits — construction workers, teachers, police, state and local public workers, and a majority of those on private insurance — will be immediately and significantly impacted by this tax.
To illustrate this point, if the trend of average annual growth of just under 10 percent continues, the median premium for a Massachusetts small business employee on a family insurance plan will go from $16,452 today to $31,333 in 2018. The median police patrolman’s family plan will increase from $20,000 today to $31,826 in 2018 and the cost of an median individual plan for a middle-school teacher will rise from $6,236 to $10,430.
When health premium inflation is included, half of all Massachusetts citizens on private insurance will be subject to the tax in 2018. Unless premiums stop rising, the vast majority of the working population will be paying the tax within a few years after 2018.
In fact, the Pioneer study calculates that over the first decade, small business owner will have to pay an extra $86,905 in excise taxes for each employee with a family plan. The police patrol officer will pay an extra $53,907 in excise taxes over ten years for his or her family plan and the middle school teacher on an individual plan will pay an extra $20,807.
Once you dig into the numbers, it’s easy to see why employers nationally have identified the excise tax as their number one concern about implementation. Unlike penalties for employers that don’t offer coverage, which only apply to those with 50 or more full-time equivalent employees, the excise tax hits all employers.
To mitigate the tax’s impact, most policy experts think employers will either water down health insurance benefits to stay below the premium threshold and avoid additional tax liability, or simply drop coverage and send their employees to the public exchange each state is required to set up under the new law. The latter would drive up the cost of the law significantly.
The commonwealth’s 2006 reform remains relatively popular with two-thirds in support. Come 2018, it will be interesting to see if President Obama’s law loses even more support in high health insurance premium blue states like Massachusetts, when the “Cadillac tax” provision increases the tax bill of most middle-class workers in the state.
Josh Archambault is director of healthcare policy at Pioneer Institute, a Boston-based think tank which recently published “The Great Experiment: The States, The Feds and Your Healthcare.”
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