The National Association of Health Underwriters recently published an article about the Cadillac Tax.
The Cadillac Tax is set to go into effect in 2018. It will apply a 40% excise tax on the amount of the aggregate monthly premium of each primary insured individual that exceeds the year’s applicable dollar limit, which will be adjusted annually to the Consumer Price Index (CPI) plus 1%. When originally conceived, it was thought that the tax would only apply to a small percentage of health plans and that most employers would be able to make choices that would allow them to avoid the tax. However, five years later, it is clear that this will not be the case. Not only will the tax disproportionately apply to employers and employees that have historically favored generous benefits over higher salaries, such as non-profit organizations, but it will also disproportionately impact employers and employees that have implemented plans that include Health Savings Accounts, those with older and/or less healthy employees, and employers in certain parts of the country based on mandated benefit requirements and medical care costs in their areas. While designed to incent employers from offering the most-benefit rich plans, in reality the tax will impact a majority of plans, including those that aren’t benefit-rich and were not the intended targets of this provision.
Furthermore, employers of all sizes will be burdened with onerous compliance requirements for the tax. As the tax can impact each plan beneficiary differently based on their family size, age, health status, geographic rating area, state mandates and other criteria, in addition to factors like which plan each individual has chosen and whether they have contributed towards a HSA or FSA, employers will be faced with having to track and record each of these individual spending levels on a regular monthly basis and reporting their liability directly to the insurer or TPA that will pay the tax on their behalf.
We believe that Congress must act now to repeal the tax before it ever goes into effect. For more information on this tax click here.