Collective bargaining agreements generally run in 3-year cycles; every three years they expire, at which time companies and unions re-negotiate a contract to govern labor relations for the next three years. That means contracts that are negotiated in 2015 must take into account the Affordable Care Act’s “Cadillac” tax for most union health care plans, which takes effect in 2018. Virtually every employer I have talked to – and statistics echo – are laying the groundwork to make sure they don’t have to pay the 40% surcharge on the portion of annual health insurance spending that exceeds $27,500 for a family or $10,200 for an individual.
Unfortunately, this tax will result in a higher out-of-pocket healthcare cost for workers. Most employers, according to the National Business Group on Health, “don’t think there is any employer that’s planning on paying that tax. It doesn’t help the company, it doesn’t help the employees, it doesn’t help the shareholders. It doesn’t really help anybody except the federal government.” In fact, ObamaCare, once lauded by labor unions, has become a thorn in their sides, as well, as fallout from the Cadillac tax directly affects their members.
Employers that have traditionally offered generous benefits to lure top professional talent, or who have conceded to demands from labor unions for better health benefits, are the most susceptible to the tax. Their responses thus far have been to impose new requirements on workers and to reduce their health benefits.
President Obama, who signed the Affordable Care Act, will not be in office in 2018 to collect revenue generated from the tax. Those thinking that the tax will be delayed or repealed could suffer the worst fate for sticking their proverbial ostrich heads in the sand. If repealed, Congress will need to come up with a way to replace the $111 billion that the tax is expected to generate, an amount that continues to grow as health care costs increase and more companies are taxed. Most companies are assuming that the tax will remain in effect and are planning ways to avoid falling victim to it.