American employees still need relief from the Cadillac tax

Last week, President Obama gave his final State of the Union, striking a chord of hopeful optimism with regard to the nation’s future and the outlook for the American people. In contrast with previous State of the Union addresses, the president’s landmark legislation—the Affordable Care Act (ACA)—took a backburner in the policy rhetoric relative to other issues such as refugees, climate change, and political reform. One of the few healthcare-related comments the president did make was, “I’m guessing we won’t agree on healthcare anytime soon, but there should be other ways parties can work together to improve economic security.”

But amid all the political debate surrounding the ACA, there is one important aspect of our national healthcare system around which significant bipartisan agreement exists: hardworking Americans need a way to cope with rising healthcare costs. 

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The highly unpopular Cadillac tax met its match in 2015, as opponents from a wide political and advocacy spectrum took a stand against the 40 percent nondeductible tax on high-cost employer sponsored healthcare plans. These efforts ultimately resulted in Obama signing legislation that allows for a two-year delay of the Cadillac tax’s implementation, pushing it back to 2020. This is a start, but it’s not good enough for the millions of middle-class American employees who rely on their flexible spending and health savings accounts to manage their and their families’ healthcare costs.

A recent New York Times articleon the state of our nation’s health insurance system as an effective safety net alludes to the “high costs of health care in the United States, the most expensive place in the world to get sick.” Consumer-driven health plans like Flexible Spending Accounts (FSAs) and Health Savings Accounts (HSAs) are one of the most effective ways to make healthcare more affordable, manageable, and predictable for American families. These accounts enable employees to save their own money for family health expenses through regular payroll deductions.  Since the Cadillac tax includes individuals’ contributions to their flexible benefits accounts, more and more employers will (and many already have begun to) cease offering FSAs and HSAs in order to avoid triggering the tax threshold. In effect, workers will lose a useful, tax-effective tool to pay for these high costs. For this reason, it is crucial that we find a way to fully repeal the Cadillac tax before 2020, or, at the very least, exempt employee contributions to their health savings and flexible health care accounts from the tax calculation.

The Cadillac tax will now be an issue for the next president and a new Congress, and they will have a bastion of support in opposing the tax. Thanks to the hard work of Democratic and Republican champions like Sen. Dean HellerDean HellerSenators offer bill removing hurdles to offering stock options Six senators call on housing regulator to let Congress finish housing finance reform Majority of GOP senators to attend Trump convention MORE (R-Nev.), Reps. Frank Guinta (R-N.H.) and Joe Courtney (D-Conn.), and many others, the legislative groundwork for repeal has been laid. As we enter 2016 and elect our next president, we can rest assured that whomever is voted into the Oval Office has declared their opposition to the Cadillac tax. So while the 2-year delay buys some time, it cannot be the end result we settle for.

As the debate continues in 2016 and beyond, our new political and policy leaders must remember one thing. Regardless of how complicated the politics are around the ACA, the outlook for American employees if the Cadillac tax gets implemented without significant changes is simple: millions of middle-class employees will be less equipped to pay for their and their families’ healthcare needs. Approximately 103.5 million Americans who benefit from consumer-directed accounts would be impacted.

The Cadillac tax may have bought more time, but if sound policy, responsible political leadership, and bipartisan agreement prevail between now and 2020, the Cadillac tax will lose its legs before it is set to hit the ground.

Sweetnam is the legislative and technical director for the Employers Council on Flexible Compensation. He has also served as the benefits tax counsel for the U.S. Department of the Treasury, and as tax counsel for the Senate Finance Committee.

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