Wal-Mart Stores, Inc. (WMT), Cummins Inc. (CMI): How Obamacare’s Cadillac Tax Will Affect You

Page 1 of 2

Wal-Mart Stores, Inc. (NYSE:WMT)Obamacare has been controversial since it was first proposed, and the debate about the law has only gotten more heated as more of its provisions take effect. With Americans now starting to see more of Obamacare’s elements take shape, such as state health-insurance exchanges geared toward getting insurance coverage for the currently uninsured, analysts are turning their attention to some of the less-followed but equally important aspects of the Affordable Care Act that could have a big impact in the future.

One part of Obamacare that has become newly controversial applies to its taxation of employer-provided health insurance policies that offer extremely valuable benefits. Dubbed the Cadillac tax, this rule doesn’t take effect until 2018, but when it does, the impact could be draconian. Let’s take a closer look at exactly what the Cadillac tax does and how it could affect you.

President Obama at the 2013 State of the Union address. Source: White House.

How the Cadillac tax works
The way Obamacare will impose the Cadillac tax is deceptively simple. Under the law, if an individual health-insurance policy costs more than $10,200, the employer has to pay a 40% excise tax for any amount above that $10,200 threshold. For family policies, the corresponding threshold is $27,500.

Given those high dollar amounts, you might imagine that not many policies would be subject to the Cadillac tax. But initial projections estimated the potential revenue from the Cadillac tax at $137 billion over the next decade, and even though the Congressional Budget Office recently reduced that estimate to $80 billion, that tax corresponds to $200 billion in additional insurance-value above the Cadillac tax thresholds. Moreover, even though the threshold figures are indexed for inflation, rising health care costs that have historically climbed more quickly than the Consumer Price Index could leave an increasing number of employers having to pay the tax.

Moreover, one big problem with the threshold figures is that they’re the same for people of all ages. That doesn’t match up with the economics of health insurance, where policies for older workers cost far more than policies with identical benefits for younger workers.

As a result, older workers are more likely to trigger the Cadillac tax for their employers over time, giving employers yet another incentive to favor a younger workforce even as more workers approaching retirement age seek to extend their careers. In addition, although retirees not covered by Medicare who are fortunate enough to get health-insurance coverage from their employers would be subject to higher thresholds of $11,850 for individual plans and $30,950 for family plans, the tax would nevertheless pose another obstacle in convincing employers to provide those valuable benefits for their retired workers.

What employers are doing
Even though the excise tax is still more than four years from taking effect, employers are taking steps now to try to manage its effects. Given the need for many employers to engage in collective bargaining with their employees in order to implement major changes to health-insurance coverage, four years isn’t as long as it seems in trying to adapt to avoid the Cadillac tax down the road. The opposition of labor unions against the tax bears out the need for early action.

Page 1 of 2

Biotech Insider Alert - $6 Stock To Hit $40

$200 Million Dollar Healthcare Hedge Fund's #1 Best Idea Right Now

The best healthcare hedge fund out there right now is one of the largest shareholders in this biotech stock. The fund returned more than 20% in each of the last 2 years with a virtually fully hedged portfolio, and it's sending out a BUY signal on this biotech stock. Get your FREE REPORT today (retail value of $300)

This is a FREE report from Insider Monkey. Credit Card is NOT required.
Comments
Insider Monkey Small Cap Strategy
Insider Monkey Small Cap Strategy

Insider Monkey beat the market by 52 percentage points in 24 months. Our beta is only 1.2 (don't click this link if beating the market isn't important to you).

Lists

The Oldest Money Managers

The Greatest Directors in the World

Largest Animals in the World

World’s Most Expensive Desserts

Best Selling Comic Books of All Time

A-list Actors who Sabotaged Their Career

Rappers With a College Degree

The Best Jazz Albums of all Time

The Most Influential Jazz Musicians

The World’s Most Famous Photographers

The Best Oscar-Winning Songs

Most Influential Choreographers Ever

Most Expensive Department Stores in the World

The Most Expensive Stolen Paintings in the World

The World’s Most Expensive Teas

Top Oscar Record Holders

The Most Expensive Flowers in the World

Countries With a Booming Film Industry

Most Expensive Cupcakes in the World

Uncommon European Escapes

The Most Stolen Artists in History

Best Travel Destinations in Australia

World’s Most Expensive Musical Instruments

World’s Most Famous Animals

Most Expensive Cakes in the World

Most Expensive Kosher Champagne in the World

Most Expensive Kosher Wine in the World

The Most Surprisingly Dark Fairy Tales

Most Popular Travel Destinations in Asia

The 10 Most Expensive Dresses Ever Worn to the Oscars

World’s Most Visited Art Museums

Best Countries for Photographers to Work in

Best Paid Jobs in the Film Industry

The Most Renowned Recovered Paintings Ever

Child Stars That Turned out Just Fine

Books That Were Banned in the Past Century

World’s Richest Dancers

Best Remedies against Bad Breath

Foods That Improve Your Skin Texture

Best-Selling Children’s Books of all Time

Foods That Boost Your Libido

Best-Selling Books of all Time

The Most Expensive Academy Awards Jewelry in History

Most Expensive Japanese Restaurant In New York City

The Best B-Boy Movies

Most Awesome Hip Hop Documentaries

Foods That Stain Your Teeth

Richest Doctors in the World

The Best Movie Sountracks Ever

The Highest Grossing Musicals on Broadway

Subscribe

Enter your email:

Delivered by FeedBurner

X

Thanks! An email with instructions is sent to !

Your email already exists in our database. Click here to go to your subscriptions

Insider Monkey returned 129% in 2.5 years!! Wondering How?

Download a complete edition of our newsletter for free!