Employers Should Prepare for Effect of Health Plan Cadillac Tax on Their Business, Health Care Costs

AUSTIN, Texas, June 24, 2015 /PRNewswire/ -- A little-publicized component of the Affordable Care Act (ACA) is set to take effect in 2018 with potentially significant financial consequences to employers that offer benefit-rich health coverage. The "Cadillac tax," passed as part of the sweeping health care reforms adopted in 2010, was included in the Act in an attempt to reduce health care costs by encouraging employers to offer cost-effective health coverage that would engage employees in sharing in the cost of their care. The belief is that if individuals are required to share in the cost of their health expenses, they will be less likely to seek unnecessary medical care.

The levy, a 40 percent excise tax on high-cost employer-sponsored group health plans, is assessed on the amounts of total health plan premiums paid by the employer that exceeds established thresholds per employee. The tax is projected to generate $120 billion to help pay for the ACA. 

The current thresholds for high-cost plans are $10,200 for individual coverage and $27,500 for "other than self-only" coverage. Thresholds will be updated for 2018 when final regulations are issued, and indexed for inflation in future years. While the goal of reducing health care costs has obvious benefits, the effect of the tax on unknowing businesses could be significant. Whether employers are small or large, the financial impact could be devastating and far-reaching. By 2022, an estimated 60 percent of all U.S. employers may be impacted by the Cadillac Tax.

Janet Trautwein, CEO of the National Association of Health Underwriters, said, "Assessing the impact of this tax and having a plan for moving forward will be an essential financial exercise for businesses in the coming months. Many may realize the tax will result in higher projections for future health care cost projections than originally estimated."

Estimates project that upwards of 12 million employees at large companies will pay an average $1000 in additional income and payroll taxes. Alternatively, employees could see drastic reductions in health care benefits but without an increase in pay.

Adjusting coverage provided to employees once the effect of the tax is determined could result in … Click here to download the full press release.

SOURCE Texas Association of Health Underwriters