Free Essay On Obama Care And Its Effects On Employees: Labor Issue

Introduction

The Patient Protection and Affordable Care Act (PPACA) or Obama Care is a healthcare reform enforced in United States in 2010, and since then it has been a bone of contention in the country. Although this health program was implemented with intent to enhance competition between insurance providers, provisions of this health plan led to a number labor issues. Cadillac tax appears to be a potential labor issue associated with the Obama Care as it harms employees’ gold-plated insurance plans. This paper will give specific emphasis to the Cadillac tax issue and identify how this particular problem hurts the interests of employees at local and state government levels.

Cadillac Tax Problems

As per the report of SESCO Management Consultants (n.d.), the Obama Care levies an annual 40% excise tax on insurance plans having annual premiums above $10,200 for individual coverage or $27,500 for family coverage. This law will be put in force by 2018. It is important to note that the tax is not levied on the total cost of the insurance plan, but on the costs above the aforementioned amounts. After 2018, the premium limits will be adjusted annually in accordance with inflation rates. According to the terms of the Cadillac tax plan, the additional costs may include any part of the individual’s income related to flexible spending accounts, health savings accounts, and health reimbursement accounts; but not expenditures associated with stand-alone dental, vision, disability, accident, or long-term care insurance coverage (Roy, 2013). Although this policy was introduced to finance Obama Care, to cut down healthcare costs, and to address the unequal distribution of employment-based tax benefits, it resulted in some severe labor issues.
It was a World War II decision to exempt health benefits from wage controls during the war time. This exemption was later integrated into the tax code so that health benefits are not considered as taxable income. Although the main objective of this provision is to influence workers to get health insurance from their employers, it makes them insensitive to the cost of that coverage because the workers do not shop themselves for the coverage. The Cadillac tax introduced under the Obama Care is an attempt to address this problem. However, this policy amendment was severely opposed by labor unions arguing that it would produce many unintended consequences. The private sector unions strongly claim that the Cadillac tax would “shatter not only our hard-earned health benefits, but destroy the foundation of the 40 hour work week that is the backbone of the American middle class” (Roy, 2013). In addition, the public sector unions are also hopping mad about the Obama Care’s huge excise tax on costly health insurance plans. As Stark (2014) argues, despite the common wage freezes for all US labors since the 2008 global recession, the public sector employees enjoyed increased compensation through expanded health benefits; and the new tax policy would significantly reduce the attractiveness of such benefits, and hence government employees are adamantly hostile to the introduction of Cadillac tax.
The Association of Washington Cities (AWC) follows a pooling arrangement to provide health benefit plans to municipalities in the State of Washington. Currently the AWC delivers health benefits to 16,000 employees and retirees and covers a total of 36,000 lives including family members (Stark, 2014). In the light of current healthcare plans and an estimated five percent annual increase in health insurance costs, the AWC’s Employee Benefit Trust Program Manager Carol Wilmes states that the excise tax would contribute an additional $76 million in local taxes for the ten years starting in 2018. Similarly, the City Council of Everett estimated that the Cadillac tax could potentially increase the employee health benefits costs by $1.5 million annually (Stark). As a US Federal government extensively supports employer-sponsored insurance coverage, it is the employer who is going to bear the burden of Cadillac tax. Because of the tax exemption status of health insurance plans, employers were keen to offer more generous health benefits than higher wages. As the new healthcare policy counts health benefits as taxable income, local governments are forcing the labor unions for a renegotiation of their health benefits. It is clear that the problem would affect large companies more as they generally offer gold-plated health insurance packages to their employees. According to a report by the American Health Policy Institute (as cited by Mangan, 2014), large companies subject to the Cadillac tax would be required to pay an average of $2.1 million annually from 2018 to 2024, equivalent to $2,700 for each employee. In an attempt to respond to this issue, companies may make changes to workers’ wage structure to balance reductions in health benefits due to the excise tax and the situation in turn would force employees to face an average of $1,050 in excess payroll and income taxes annually (Mangan). Industry analysts say that the additional burden imposed by the Cadillac tax would be ultimately transferred to employees and hence they are the real losers. Many bigger companies have already made it clear that they would like to skip the Cadillac tax, indicating that they would adopt different strategies to stay below the Cadillac tax’s threshold. Tevi Troy, the President of the American Health Policy Institute (AHPI), warns that when companies operate to limit their exposure to the Cadillac tax, the situation may negatively affect employees who find their health plans less affordable (Mangan, 2014).
According to Piotrowski (2013), the Obama administration considers Cadillac tax as a means to curb the growing health care costs by forcing employers to offer less generous health insurance plans to their employees. The basic idea behind this policy is that when people are forced to meet more of their direct health care costs, they will be more conservative in using the insurance benefits. Although this policy was actually designed to hit employers who offer more generous insurance plans so as to enjoy income tax advantages, it will certainly have harming impacts on employees. Another AHPI research study found that over 38 percent of large companies with workforce strength of more than 1,000 employees will be hit by the Cadillac tax unless they make appropriate changes to their health plans by 2018; and in addition, 17 percent of the all US business would be affected by this excise tax in 2018 (Mangan, 2014). This statistical projection makes it clear that the introduction of Cadillac tax under the Obama care would adversely affect the financial interests of tens of thousands of employees. Management professionals claim that such a situation would lead to conflicts between the management and employees and which in turn may result in declined employee productivity, a major problem limiting the market competitiveness of firms. When employees face a cut in their income, they are likely to seek illegal and unethical ways to increase their income and the situation would pose serious threats to the organization’s long term sustainability.
As mentioned already, the thresholds that drive the Cadillac tax grows eventually at the rate of general inflation but not health inflation. As a result, this excise tax has the potential to ensnare more and more people over time. Therefore, it is clear that Cadillac tax would create even more serious labor issues in future unless its provisions are amended in a thoughtful way. It would be a great way to cut down the percent of the tax imposed and to increase the threshold premiums to minimize the employee resistance to the Cadillac tax. Once the corporate world accepts it, the government can increase the tax rate gradually without facing much resistance.
Conclusion

References

Mangan, D. (Nov 11, 2014). Obamacare Cadillac plans? You're gonna pay for that . CNBC. Retrieved from http://www.cnbc.com/id/102170937
Piotrowski, J. (Sep 12, 2013). Excise Tax on 'Cadillac' Plans. Health Policy Brief. Retrieved from http://www.healthaffairs.org/healthpolicybriefs/brief.php?brief_id=99
Roy, A. (June 8, 2013). Labor Unions' Latest Problem: Obamacare's 'Cadillac Tax' Harms Their Gold-Plated Health Insurance Plans. Forbes. Retrieved from http://www.forbes.com/sites/theapothecary/2013/08/06/labor-unions-latest-problem-obamacares-cadillac-tax-harms-their-gold-plated-health-insurance-plans/
SESCO Management Consultants. An Employer’s Guide to Healthcare Reform. Retrieved from http://c.ymcdn.com/sites/www.acil.org/resource/resmgr/imported/Employers%20Guide%20to%20Healthcare%20Reform%20White%20Paper.pdf
Stark, R. (2014). How Obamacare’s “Cadillac Tax” will affect local governments, public employees and local taxpayers. Washington Policy Center. Retrieved from http://www.washingtonpolicy.org/publications/notes/how-obamacare%E2%80%99s-%E2%80%9Ccadillac-tax%E2%80%9D-will-affect-local-governments-public-employees-and