If you’re starting to lose sleep over the impending Cadillac tax, you’re not alone. Here at the International Foundation, we’ve been hearing our members discuss how the Affordable Care Act (ACA) excise tax will impact their health plans. We wanted to learn more, so we asked—and heard from more than 400 of our members representing a cross section of organizations across the U.S.
What’s the Cadillac tax?
ACA introduced a 40% excise tax on high-cost health plans offered through the workplace (referred to as the Cadillac tax), effective in 2018. If employers offer high-cost health plans (defined as those with costs above $10,200 for individuals and $27,500 for family coverage), they or their insurance company will owe the IRS a 40% tax on the excess amount. Multiemployer plans will use the higher family coverage threshold to determine if the tax is triggered.
How many plans are impacted?
Nearly nine in ten organizations (87%) told us they’ve done calculations to see if their plans will trigger the tax, and 60% will. Among those, most (62%) will trigger the tax right away in 2018 and another 12% will do so in 2020. Two in five organizations (40%) are already working on changes to avoid the tax, and another 40% plan to start making changes before 2018. Five percent aren’t planning to make any changes, so they will pay the tax.
A little more than one-quarter (27%) told us they’ve done the calculations, and they won’t trigger the tax; in several cases it’s because they’ve already changed their plans to avoid it.
What are organizations doing to avoid the tax?
Almost half (46%) are trying to hold down overall plan costs by shifting more costs to workers via coinsurance, copayments and the like. Two in five (39%) are moving to a high-deductible health plan, one-third are reducing benefits, and nearly one-third (31%) are dropping higher cost plan options. Less common changes involve provider-based solutions; 6% of organizations are switching to high-quality care options like performance-based networks or accountable care organizations, and 4% are looking to contract directly with providers.
The future . . .
There’s still a lot of flux surrounding this ACA provision. The IRS latest Cadillac tax comment period closes October 1, and four federal bills have been introduced to eliminate the tax. As always, stay tuned to the Foundation’s ACA University and ACA Central for the latest news.
[View the complete ACA Cadillac Tax and Reporting: 2015 Survey Results]
Julie Stich, CEBS
Director, Research at the International Foundation
Judith Kohler
It is our understanding from various webinars attended that it does not benefit a plan to shift costs to employees as the total cost of the plan option is used in the calculation.
Donna Malliett
Judith, you are correct that if an employer shifts some of the premium cost to employees, that wouldn’t help. However, if the employer increases copays, or reduces co-insurance, then that would reduce the premium rates and help delay incurring the tax.
Scott Kovaloski
You are correct that what employees contribute from their pay has no impact. Unfortunately,the graphic in the article is a little misleading by using the label, “Shift costs to employees”. However, if you read the text in the article, it states, “…by shifting more costs to workers via coinsurance, copayments and the like.”
I think they were trying to differentiate between organizations who are going the full replacement-HDHP route, and those who are managing plan values by simply tweaking designs.