The Cadillac Tax or Excise Tax on High Cost of Coverage takes effect in 2018.
In January 2018, there will be a 40% excise tax on health insurance plan premiums that exceed a certain threshold. Today, (because regulations change daily), that threshold is $10,200 for individual coverage and $27,500 for family coverage. These amounts will increase for certain businesses such as with high risk professions and employers with an aging population. This permanent tax would apply to the amount over the threshold for both small and large employers and with fully-or self-funded plans.
Nationally, we are hearing that many organizations have started planning now to avoid the tax on their benefit programs. However, in Portland and our surrounding area, most of our employer groups have already started increasing deductibles (with an average over $1,000 deductible) and many over $2,000 deductibles in a calendar year. Where there are unions in the picture, these are the organizations that need time for negotiations. They have had to start thinking about how best to plan for the future so as not to incur this additional tax. Five years may seem like a long time to most of us, but union members have to agree to employment contracts years in advance.
This has been a very big sticking point with unions because they typically negotiate very comprehensive benefits on behalf of their members compared to non-union employers. Under the Affordable Care Act, President Obama stated many times that “If you like your health plan, you can keep it.” However in this case, if an employer keeps the same health plan, there will be great tax consequences. The unions played a very large part in this piece of the law whereas all businesses will not be affected until 2018. This orginally was presented to be part of the 2013 implementation.
For most employers, there is still plenty of time to think about the Cadillac Tax. For now, the majority are working through better understanding the health care exchanges, employer mandates, pay or play calculations, mandatory reporting and human resource compliance.