CHA News Article

Report Explores How Employers Could be Affected by Cadillac Plan Tax

The Kaiser Family Foundation recently released a report exploring  the impact of the Affordable Care Act’s (ACA) high-cost plan tax (HCPT), sometimes called the “Cadillac plan” tax, on employer decisions about their health benefits. The report suggests that a meaningful percentage of employers would need to make changes in their health benefits to avoid the HCPT in 2018, a percentage that grows significantly over time unless employers are able to keep health plan cost increases at low levels. About 19 percent of employers already have a plan that would exceed the HCPT threshold when flexible spending account (FSA) offers are considered; these firms would need to reduce their current plan costs over the next several years to avoid the tax. The report also estimates that by 2028, 42 percent of employers would have plan costs that exceed the threshold for some or all employees. To the extent that health plan premiums continue to grow faster than inflation – a likely scenario – the share of employers affected by the HCPT will grow, eventually reaching 100 percent.

In addition to raising revenue to fund the cost of coverage expansion under the ACA, the HCPT was intended to discourage employers from offering overly generous benefit plans and help to contain health care spending. The HCPT taxes plans that exceed certain cost thresholds beginning in 2018 — $10,200 for self-only (single) coverage and $27,500 for other than self-only coverage. These thresholds will increase annually with inflation in subsequent years. The amount of the tax is 40 percent of the difference between the total cost of health benefits for an employee in a year and the threshold amount for that year.

According to the report, the potential of facing an HCPT assessment as soon as 2018 is motivating employers to assess their current health benefits and consider cost reductions to avoid triggering the tax. Some employers announced that they made changes in 2014 in anticipation of the HCPT, and more are likely to do so as the implementation date nears. By making modifications now, employers can phase-in changes to avoid a larger disruption later. Some things employers can do to reduce costs under the tax include:

  • Increasing deductibles and other cost sharing;
  • Eliminating covered services;
  • Capping or eliminating tax-preferred savings accounts like FSAs, health savings accounts or health reimbursement arrangements;
  • Eliminating higher-cost health insurance options;
  • Using less expensive (often narrower) provider networks; and
  • Offering benefits through a private exchange, which can use all of these tools to cap the value of plan choices to stay under the thresholds.

Frequently, these changes will result in employees paying for a greater share of their health care.

The full report is available on the Kaiser Family Foundation website.