Fixing the Cadillac Tax – An Unfair Excise on the County’s Residents, Businesses, and Government

February 4th, 2014

In 2018 Fairfax County, along with its citizens and businesses, will be subject to what is known as the “Cadillac” tax, a 40% excise tax which targets healthcare plans that are viewed to offer too much coverage in an attempt to encourage employers to reduce benefits. However, the tax is based on plan premiums, not plan coverage. In effect, a plan is labeled “Cadillac” because of its high premiums resulting from higher health care costs not necessarily because of its high coverage. This is not what the policy was intended to target.

Although county staff are yet to do an analysis on how much this tax will cost Fairfax County, an independent benefits broker has put the county government’s liability as high as $40 million – a significant amount of money.  Many of our businesses and citizen’s will be similarly impacted.  This is another Affordable Care Act tax that has received little attention as it is still several years away.

Since healthcare premiums are largely determined by the local economies in which the plans are bought and sold, the local cost of living plays a large role in the cost of the premiums. The federal government’s own website, HealthCare.gov, characterizes geographic location as having a “big effect” on premiums. What this means for those individuals, businesses and governments in high cost of living regions, such as the Washington metropolitan area, is an unfair classification of our healthcare plans as “Cadillac”, and thus being subject to an inequitable tax—a tax that is/and or will result in employers terminating coverage.

In order to remedy this lack of equity, I asked the Board last Tuesday to support an effort to index the classification of a plan as “Cadillac” by applying a local cost of living measure to adjust for increased healthcare premiums associated with some metropolitan regions’ cost of health care. I requested the Board include this concept in our Federal legislative package and contact our legislative representatives in the event the Cadillac tax is not repealed.

The inequitable “Cadillac” tax will impact our county health plans and our budgets significantly if this inequity is not addressed. Not only will it unfairly impact the county but it will unfairly impact our businesses and residents and potentially their ability to get employer provided health care or the coverage’s available to employees in other jurisdictions that have a lower cost of health care. Ideally, the Cadillac tax should be abolished in its entirety.  In the very least it needs to be indexed to cost of living. This is clearly a basic fairness issue and another large problem in a long list of problems with the Affordable Care Act.


Paid for by Friends of Pat Herrity