The Patient Protection and Affordable Care Act is already being phased in, but the so-called “Cadillac tax,” scheduled to go into effect in 2018, has employers concerned about the costs of their plans. This excise tax on the most expensive health plans will be one of the last facets of PPACA to be implemented, and some lawmakers are gearing up for a fight to repeal it.
“The government has (long) encouraged companies to offer health insurance by letting them write off from their taxes the cost of providing workers with coverage for more than a half-century, a byproduct of World War II-era wage controls,” writes Brian Faler for Politico. “Eager to attract workers and unable to increase pay, companies turned to expanding fringe benefits such as health insurance. But economists of all stripes have long complained the open-ended tax break companies get for providing that coverage drives up health care costs while disproportionately benefiting the affluent.”
But the tax’s name is a misnomer, writes Robert Wood for Forbes. “It will apply to many benefits that are not elite,” he writes. “Company provided health benefits have not been taxed for generations. And that is exactly what the Cadillac tax does. It is broad too, applying to health savings and flexible spending accounts, supplemental insurance plans, and more.”
He believes plans that aren’t affected when the tax goes into effect in 2018 could be soon after, because the medical and insurance costs are growing faster than the consumer price index plus 1 percent, which the tax is linked to. “A survey by Mercer anticipates that one-third of employers will be hit by the tax in 2018, growing to 60 percent by 2022,” Wood writes.
He also believes the end result will be detrimental to employees, especially those like union members, who have negotiated for more generous health benefits. ”A reasonable response to the Cadillac tax is likely to be cutting of health insurance,” he writes. “Less generous coverage will presumably be provided. In large part, the result is likely to higher costs for employees, higher deductibles, and other add-ons that will harm employees.”
Even as lawmakers debate the tax, employers are examining their benefits strategies in order to prepare, writes Melissa Winn for Employee Benefit Adviser. “Industry experts say benefit advisers hoping to add value to their client relationship should have sound strategies to suggest for keeping health care plan costs down,” Winn writes. These ideas may include adding spousal surcharges, reducing subsidies for dependents and examining pharmacy benefits.
Employers must also include in their calculations and examine tax-advantaged health care accounts. “Health flexible spending accounts, health reimbursement accounts and pretax contributions to a health savings account all need to be included in tax calculations,” Winn writes. “The tax is not determined by the value of the medical plan alone but rather the value of all affected health benefits elected by an employee or family.”