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From the Law Office of Beeson, Tayer & Bodine

Obamacare’s “Cadillac Tax” impacts union members most

When the Affordable Care Act (“ACA” or “Obamacare”) was passed in 2010, its “Cadillac Tax” got relatively little attention compared to other aspects of the law, like the “individual mandate” and the Healthcare Exchanges. However, when the Cadillac Tax first applies in 2018, it will likely hit union members— whose unions fought for and won strong benefits— very hard.

What is the “Cadillac Tax”?

The Cadillac Tax is a 40% tax imposed on the cost of healthcare coverage that will start in 2018. In 2018, if a union plan costs more than $27,500 a year, everything over that limit is taxed at 40%. For example, if in 2018, the plan costs $30,000 per year, that’s $2,500 over the $27,500 Cadillac threshold. The Plan will have to pay a tax of 40% of $2,500, which equates to $1,000 per member.

The intent of the tax is to generate revenue to fund other aspects of the ACA, (such as the subsidies available to individuals who purchase coverage on the Exchange), and to encourage employers to eliminate health coverage perceived as “too generous” in the hope that this would reduce healthcare costs overall.

How Does the Cadillac Tax Affect You?

Your health benefits are the product of hard bargaining with management. Keeping those benefits strong has meant balancing the cost of the health plan against other costs of the contract such as wage increases and pension improvements. For many Joint Council 7 Locals, the contracts obligate the employer to “maintain the benefit,” meaning that the benefits cannot be reduced even to keep from being forced to pay Cadillac Taxes.

The Cadillac Tax will make it harder for the union to keep negotiating strong benefits because it adds a huge tax burden to the cost of the plan. The tax will also give employers even greater reason to leave union plans and cut benefits.

The Cadillac Tax will also fall most heavily on plans in expensive markets like Northern California. According to a study commissioned by the National Education Association, (the teachers’ union), the Cadillac Tax is likely to be triggered not simply by “rich” benefits, but also by a plan’s geographic location, its participants’ average age and the plan’s gender mix. In other words, between a plan in the Bay Area and the Central Valley and a plan in Toledo, Ohio offering identical benefits, the California plan is much more likely to exceed the Cadillac Tax threshold than the Ohio plan.

Will the Tax be Repealed?

Unlike attempts to repeal other parts of the ACA, repeal of the Cadillac Tax has bipartisan support. Major corporations, unions, and insurance companies have joined together under the name “Alliance to Fight the 40” to formally campaign against the tax.

Beeson, Tayer & Bodine — Oakland: 510-625- 9700. Sacramento: 916-325-2100.