🔒Employers must prep for Cadillac health plan tax

The Cadillac tax will soon become one of the most impactful and controversial provisions of the Affordable Care Act for employers. It introduces a non-deductible excise tax on high-cost health plans and is aimed at both stemming the tide of rising healthcare costs plus funding the expansion of health coverage. Right now, these high-end plans are mostly paid by employers with low or no deductibles and little cost-sharing by employees.

Taking hold in 2018, this non-deductible excise tax will target healthcare plans exceeding $10,200 of coverage for individuals and $27,500 for spouse or family coverage. The 40 percent Cadillac tax will be levied on the amounts exceeding these thresholds.

It is a common misconception among employers that this tax will be appealed prior to 2018. However, in one way or another, the Cadillac tax is here to stay. According to Dennis Fiszer, chief compliance officer and practicing ERISA attorney at HUB International East Region, “Some Washington policymakers contend that the Cadillac plan tax concept offers a good way to mobilize employers to do more to control healthcare costs, rather than simply passing on increases in the underlying costs.” He added “the problem is that the law never created a fair and uniform baseline for all employers to start from. In this region, our medical costs are significantly higher than the national average so it is quite unfair for local employers already being hammered with higher medical costs, being forced to address Cadillac tax pressures.”

Not sure if it affects your business? Think again. The tax applies to every size company with no complete exemptions for union workers. The government projects that 60 percent of employers will have some offerings within the thresholds, and will have to pay the tax between 2018 and 2022.

Health plan costs subject to the Cadillac tax include:

• Medical and prescription drug plan premiums

• For self-funded plans, cost will mean premium equivalents inclusive of administrative services only (ASO) fees and reserves for incurred, but not reported claims

• Employee contributions to a health flexible spending account, plus employer reimbursements

• Employer and employee contributions to health savings accounts (HSAs)

• Employer monies flowing through a health reimbursement account 

Businesses should create a three- to five-year strategic employee benefits plan to proactively address the Cadillac tax. Pillars of this strategic plan should include: a financial review of current healthcare programs and plans; the identification and subsequent reduction of associated extraneous costs; population health and wellness management; and targeted, multimedia employee communications to make sure workers at all levels understand the new plans/ benefits being rolled out.

This strategic plan should also evaluate and model the costs associated with potential consumer engagement strategies. Over time, many employers will begin moving their plan participants to a lower-value plan, maybe downgrading from a platinum plan to gold or even bronze. A necessary common denominator to the strategic plan will be employee benefits education — communicating with employees on why benefits are changing.

Further guidance regarding thresholds and permissible adjustments will be forthcoming from the Internal Revenue Service. We anticipate further clarification on items to be included in determining the cost of benefits, such as employer HSA contributions. Regardless, employers should continue to focus on managing healthcare costs by engaging employees in closely managing their health and healthcare costs. 

Tom Simses is vice president of employee benefits at HUB International Northeast, with offices in Branford and West Hartford.