Employers Get Their Cadillacs Delayed For Christmas

Implementation of the Cadillac Tax on high-cost health insurance plans has been delayed for two years, from 2018 to 2020, as part of the $1.1 trillion federal budget deal passed by Congress last week. As many of our members know, the Cadillac Tax imposes a 40 percent excise tax on the portion of group health premiums that exceeds $10,200 for individual coverage and $27,500 for family coverage. So, for example, an individual plan costing $11,200 total, regardless of employee-employer cost-sharing, would trigger a $400 tax. If 100 of a company’s employees chose that plan, the tax would be $40,000.

This tax was included in the Patient Protection and Affordable Care Act as a way to both raise revenue and push health plans to decrease costs and become more efficient. Many employers have begun implementing more stringent wellness programs to try to decrease costs and avoid the tax, as well as tweaking deductibles and co-pays. In 2018 and 2019, the tax was predicted to cost employers a total of $16 billion dollars. The Kaiser Family Foundation estimated that the tax could have impacted approximately one-quarter of all employers in 2018. The International Foundation of Employee Benefit Plans recently released a survey showing a much higher number, a full 60 percent, of employers would have triggered the tax without substantial changes to their plans. Many commentators believe that the tax will eventually be fully repealed due to its unpopularity with both Democratic and Republican legislators.

Employers should still consider strategies to avoid or minimize the tax when it goes into effect in 2020, such as expanding wellness programs to try to control premiums and improve employee health. In the interim, MSEC will continue to keep an eye on benefits issues of interest to our members.