One-Quarter of Plans Could Face Cadillac Tax in 2018

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Aug. 25 — Just over a quarter of all employers offering health benefits could trigger the ACA's excise tax on high-cost health plans in its first year if they don't modify their plans, according to projections by the Kaiser Family Foundation.

Twenty-six percent of employers are expected to have at least one plan hit the threshold for the tax when it goes into effect in 2018, according to an issue brief released Aug. 25 by the foundation.

And it gets worse from there.

“The share of employers potentially affected by the tax could grow significantly over time—to 30 percent in 2023 and 42 percent in 2028—if their plans remain unchanged and health benefit costs increase at expected rates,” the brief said.

While some employers announced changes in their plans in 2014 to avoid triggering the tax under the Affordable Care Act, more employers will likely make changes to their plans as 2018 nears, the issue brief said. The tax is a 40 percent levy on individual plans with premiums above $10,200 and family plans that cost more than $27,500. It applies only to the portion of the cost that falls above those thresholds, which will be indexed to inflation after 2018.

“By making modifications now, employers can phase-in changes to avoid a bigger disruption later on,” the paper said.

Potential changes include increasing deductibles, cutting covered services, capping or getting rid of tax-preferred savings accounts, using less expensive provider networks and offering coverage through a private exchange, Kaiser said.

Employer groups, as well as other interested parties, have been pushing back with full force against the looming excise tax on high-cost health plans, popularly called the Cadillac tax. In identical letters to the House and Senate dated Aug. 21, the Alliance to Fight the 40 called on Congress to repeal the tax. The alliance is a group made up of representatives from the employer community, unions and health insurance companies that are working to try to get the Cadillac tax repealed.

A survey released by the National Business Group on Health on Aug. 12 suggested that employers are taking a wait-and-see approach with the tax to see if there is any chance for repeal before making major changes to their benefits. That could change next year if the tax seems likely to be imposed as it currently stands.

For more information, see Compensation and Benefit Library's “Tax Aspects of Health Plans Under the Affordable Care Act” chapter.