A Kinked Health Insurance Market: Employer-Sponsored Insurance under the Cadillac Tax

Employer-sponsored insurance under the cadillac tax

Coleman Drake, Lucas F. Higuera, Fernando Alarid-Escudero, Roger D Feldman

Research output: Contribution to journalArticle

Abstract

The Affordable Care Act imposes a 40 percent excise tax on high-cost “Cadillac” health insurance plans in excess of defined thresholds beginning in 2020. Using economic theory and a microsimulation model, we predict how employers will respond to the Cadillac tax by adjusting wages and health insurance benefits. In its first year, 13.34 percent of individual and 16.73 percent of family employer-sponsored health insurance plan holders will be affected by the Cadillac tax; these percentages will increase to 35.33 and 42.01 percent, respectively, by 2025. Over 99 percent of those affected will reduce their health insurance benefits to the thresholds. Effectively, the Cadillac tax will impose a hard cap on health insurance benefits, causing a clustering of benefits at the thresholds and a sharp reduction in the variance of benefits. Revenue from the Cadillac tax through 2025 will total $204 billion, all but $42 million of which will stem from “indirect” revenues—health insurance benefits shifted into taxable wages. This shift will increase wage growth and decrease benefit growth for those affected by the Cadillac tax. We simulate a cap on the tax exclusion of employer-sponsored insurance premiums and conduct sensitivity analyses with linear regression metamodeling.
Original languageEnglish (US)
Pages (from-to)455-76
Number of pages22
JournalAmerican Journal of Health Economics
Volume3
Issue number4
DOIs
StatePublished - Oct 25 2017

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Insurance Benefits
Health Insurance
Insurance
Salaries and Fringe Benefits
Patient Protection and Affordable Care Act
Growth
Cluster Analysis
Linear Models
Economics
Costs and Cost Analysis

Keywords

  • Health insurance
  • Affordable Care Act
  • Simulation modeling
  • Cadillac Tax

Cite this

A Kinked Health Insurance Market: Employer-Sponsored Insurance under the Cadillac Tax : Employer-sponsored insurance under the cadillac tax. / Drake, Coleman; Higuera, Lucas F.; Alarid-Escudero, Fernando; Feldman, Roger D.

In: American Journal of Health Economics, Vol. 3, No. 4, 25.10.2017, p. 455-76.

Research output: Contribution to journalArticle

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