The Affordable Care Act will begin imposing the so called “Cadillac Tax” on high cost, employer sponsored group health plans in 2018. The Cadillac tax is an excise tax applied to value of high cost group health plans. This tax would be applied to plans with values that exceed $10,200 for individual plans or $27,500 for family plans. The tax would be applied to any amounts in excess of these thresholds. For many employers, it will not be difficult to exceed these dollar thresholds.
As a matter of fact, a new survey from the International Foundation of Employee Benefit Plans indicates that 60% of employers surveyed could face a Cadillac Tax.
The Cadillac Tax is assessed on much more than just the employer’s group health plan premium value. The taxable value of the plan could include all or some of the following:
- Group health plan value (Premium)
- Health Reimbursement Arrangement (HRA) Value
- Healthcare Flexible Spending Account Value
- Health Savings Account (HSA) Value
- & possibly the value of some dental and vision plans
The purpose of the Cadillac Tax is to encourage employers to offer lower-cost health plans to their employees. However, many employers will have to significantly reduce the benefits they currently offer to their employees in order to avoid this tax. Furthermore, due to the underwriting rating factors that can apply to different employer sponsored group health plans, this tax could be extremely harmful to employers that simply have very little control over the demographics and claims experience that drives the cost of their health plans.
The Cadillac Tax will pose an unfair hardship on employers that have older and/or less healthy employees. It will also be unfair to employers that have their operations in many of the more expensive health care states like Massachusetts, New York and New Jersey. The exact same benefit levels provided in Alabama would cost a heck of a lot more when offered in Massachusetts. Many employers may find themselves offering Go-Kart level plans but still paying Cadillac taxes.
We expect further final guidance on the implementation of the Cadillac tax prior to 2018. Additionally, legislation has been introduced to amend and/or repeal the Cadillac tax. However, it is unknown if President Obama would sign such a piece of legislation — even if it could pass the House & Senate. We strongly encourage employers to be mindful of this potentially costly tax when designing their employee benefit plans. A 40% excise tax could be virtually impossible for some employers to absorb or to pass on to their employees. Monitoring health plan costs will be critical in the coming years in an effort to keep plan costs as low as possible without sacrificing the level of benefits in an employer sponsored group health plan.
Eastern Benefits Group will continue to monitor any changes in this legislation and be sure to let our clients and friends know about new developments as they occur. Please call us if you have any questions regarding how the Cadillac Tax might affect your group health plan. Your Eastern Benefits Group representative can model your future costs to show you when and how a Cadillac tax might be triggered.
For additional information on the Cadillac Tax, you may also find the following articles to be helpful:
- As Employers Try To Avoid The Cadillac Tax, Treasury And The IRS Need To Act | Health Affairs
- Section 4980I — Excise Tax on High Cost Employer-Sponsored Health Coverage | IRS
- FAQ: What is the Cadillax Tax? | The Kaiser Family Foundation
- New IRS Guidance Suggests Obamacare 40% Cadillac Tax Could Get Even Worse | Forbes
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