Economists' support of Cadillac tax may be misguided

There's a battle brewing regarding the Cadillac tax, and this time it's not in politics. Economists believe the Cadillac tax that will apply to expensive health insurance plans will ultimately raise wages, but there may actually be little evidence to support this.

Some economists theorize that when hiring workers, companies have a set amount that they are willing to pay and are indifferent to whether that pay goes toward salary, health benefits, a wellness program or a monthly parking pass, Sarah Kliff writes in an article for Vox. When the Cadillac tax takes effect in 2018, this theory assumes employers will then choose the cheaper insurance plans in order to stay beneath the tax's threshold, and then any money they would have spent on the higher-cost plan will go back into the workers' salary. 

But Kliff argues that not much public data exists about individual workers' health premiums and the effect they have on actual wages. Research from Harvard University has confirmed a wage-to-healthcare-cost trade-off, but it shows that a dollar increase in health benefits does not even take wages down by a full dollar.

"Economists remain confident in the theory and chalk up the relatively weak evidence to poor data and the difficulty of designing studies that can isolate the relationship between wages and premiums," she writes.

Still, there's much to examine with the implementation of the Cadillac tax. During a labor meeting between the United Auto Workers and Fiat Chrysler Automobiles in September, the union agreed to "find new areas of opportunity to reduce cost," showing that the tax may be working as intended in some situations.

To learn more:
- read the Vox article

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