Some believe the so-called Cadillac tax (a part of the Patient Protection and Affordable Care Act) is a misnomer, but regardless of its name, employers should be paying attention.
“Since it’s called the Cadillac tax, most employers don’t seem to think it could possibly apply to their health insurance plan,” writes John Turner for Employee Benefit News. ”They know they don’t have ’Cadillac benefits’ so they aren’t focused on it. But I’m here to tell you that you need to start paying attention to this tax, and you need to start paying attention now.”
The excise tax goes into effect in 2018, which is right around the corner, Turner writes. And when it does, employers will be required to pay a 40 percent tax on health plan coverage exceeding $10,200 for individuals and $27,500 for family or “employee plus one” coverage.
“The tax is expected to generate $5 billion in revenue in 2018, then $34 billion by 2024 as more employers meet that minimum threshold,” Turner writes. “The Congressional Budget Office is clearly expecting a lot of employers to pay the tax to help fund the ACA. A recent study promoted by the Council of Insurance Agents and Brokers projects that 42 percent of employers will have to pay the tax for 2018.”
The tax will continue to “significantly impact most workers, employers and health plans, writes Lenny Sanicola for the Huffington Post. “Even the Federal Employees Health Benefits Program’s (FEHB) will be negatively impacted. In a recent study, the FEHBP Blue Cross Blue Shield standard option plan was projected to hit the 40 percent tax in 2019 for employee-only coverage, and in 2025 for family coverage,” Sanicola writes.
Sanicola believes employers will restructure their group health plans, and some are already working on those changes. “Many organizations are redesigning their benefits packages to delay incurring the tax, but the excise tax provisions will make it all but impossible over time for employers to offer plans that fully comply with the Affordable Care Act while avoiding the tax on employee health benefits,” he writes.
Turner makes recommendations for employers, which brokers can help emphasize. First, they should evaluate whether their health benefits exceed the tax’s threshold. “If you are, that means you need to take steps to reduce your exposure,” he writes. This means reducing employee use and claims expenses by finding ways to emphasize employee health.
“One way to do that is to reduce the coverage you offer your employees, often by raising deductibles,” he writes. “However, just because you raise deductibles doesn’t mean you reduce use or claims expense. The smart approach for employers is to keep employees as healthy as possible, and thereby reduce care.”