Beginning in 2018, organizations that provide high-cost employer-sponsored healthcare to employees will be required to pay a non-deductible excise tax, dubbed the “Cadillac tax.” Organizations that afford more than $10,200 per individual and $27,500 per family for employee healthcare will be taxed 40% of the overage amount (pre-tax employer contributions to HRAs, HSAa, FSAs, and MSAs are included). By 2018, the American Health Policy Institute predicts that 38% of large employers (with more than 1000 employees) will have to pay the tax, and 17% of all businesses in the US will be responsible for payment.
The Cadillac tax was implemented into the Affordable Care Act (ACA) in 2010 as a way to fund the ACA and to lower overall healthcare costs. The expectation is that employers will offer less expensive plans, and employees will reduce overuse and overspending in the system once they are responsible for part of the costs. Proponents of the tax highlight the decrease of excessive and unnecessary benefits, more incentives for insurers to offer affordable plans, and less inequality in healthcare coverage. However, those who oppose the tax cite the dichotomy between overall inflation and medical inflation, cost-shifting concerns, and the downsizing of key benefits as reasons the Cadillac tax needs to be reconsidered.
While the tax could theoretically be repealed with a new president in 2016, many companies are exploring innovative ways to reduce healthcare spending now - beyond simply raising deductibles. These include self-funded and partially self-funded plans, disease management and wellness programs, financial incentives for health screenings and meeting healthcare goals, telemedicine services, and on-site medical clinics.
On the flipside, the IRS recently issued a notice seeking comments on potential approaches/exceptions to the controversial excise tax. The possible exemptions include dental/vision plan, employee-assistance programs (e.g. counseling), and dollar-limit thresholds based on age, gender, and high-risk professions. Also up for consideration is how the costs for on-site medical clinics should be included. Before issuing final regulations, the IRS will also seek comments on the calculation and assessment of the tax.
Interested in exploring innovative ways to reduce healthcare costs and still offer your employees premium healthcare benefits, contact us.
