Cadillac tax may hit over 25% of employers starting in 2018

By Claire Thayer, September 2, 2015

One of the provisions of the Affordable Care Act is the high-cost plan tax (HCPT), aka the ‘Cadillac’ tax,  will be imposed on health insurance companies as well as sponsors of self-funded group health plans beginning in 2018.  Plans that exceed cost thresholds will incur the excise tax.  For 2018, cost thresholds are $10,200 for an individual (single coverage) and $27,500 for family. The excise tax is 40% of the amount that exceed these thresholds.

A recent analysis by the Kaiser Family Foundation of the impact of the Cadillac tax on employers summarizes the overall cost for each employee to include:

• The average cost for the health insurance plan (whether insured or self-funded);
• Employer contributions to an (HSA), Archer medical spending account or HRA;
• Contributions (including employee-elected payroll deductions and non-elective employer contributions) to an FSA;
• The value of coverage in certain on-site medical clinics; and
• The cost for certain limited-benefit plans if they are provided on a tax-preferred basis.

This same study estimates that in 2018, over 25% of employers offering health plan benefits may be subject to the Cadillac tax, and by 2028, as many as 42% of employers will incur this excise tax:

As employers look for ways to save costs, the Cadillac tax will have a huge impact on flexible spending accounts (FSAs), with some analysts conjecturing that this could lead to the demise of FSAs, as reported last week on Politico. Expect employers to make benefits changes during the open enrollment season for both this year and next. For more in-depth discussion, the Kaiser Family Foundation’s August 2015 Issue Brief will be insightful.