The New York Times reports that some health plans providing rich benefits are already scaling back in an effort to avoid the Cadillac Tax, set to take effect for the 2018 tax year. The Cadillac Tax is a term used to refer to a 40% nondeductible excise tax on high-cost health coverage. This tax applies to the monthly cost of an employee’s health coverage provided through an employer sponsored group health plan that exceeds a certain cost threshold, and will be assessed on fully insured group health plans, self-insured group health plans, and grandfathered plans. For the 2018 tax year, the threshold amounts over which the Cadillac Tax will apply are $10,200 for self-only coverage and $27,500 for other (family) coverage. These amounts are subject to three different adjustments which may result in higher threshold amounts when 2018 arrives.
In preparing a benefits strategy to address many of the changes occurring in 2014, an increasing number of employers are scrutinizing their plans with an eye toward avoiding future liability for the Cadillac Tax even as the CBO decreases the amount of revenue the Cadillac Tax is expected to generate. It is no surprise that major medical plans can be expensive, particularly if a certain comprehensive level of benefits is required to recruit and retain top talent, or if the population of covered employees has a less than desirable risk profile. Increasing deductibles and co-pays and implementing qualified high deductible health plans (QHDHPs) designed to be combined with an employee-funded Health Savings Account (HSA) is already a strategy used by many employers to cut employer costs and keep premiums at a manageable level, both for the employees and the employer.
When medical trend is factored in, along with the anticipated increased costs likely to result from an elimination of pre-existing condition exclusions, guaranteed availability and renewal, and limits on deductibles and out of pocket expenses (among others), some plans may already come very close to the statutory thresholds in 2018. For example, say an employer offers a group health plan with a self-only rate of $700 per month, or $8,400 per year. This amount trended forward at 6% a year, taking into account no other increases, would reach over $10,600 by 2017. The solution? Change the plan design and trim the fat to curb the cost, or explore other solutions to reduce the overall cost of coverage under the plan. There has been some discussion of an attempt to repeal this particular portion of the Patient Protection and Affordable Care Act (PPACA) or to revise it, but such efforts have not yet gained a strong foothold in Congress.
For the full New York Times article, click here.
