One component of health care reform that has not received much press lately is the new tax on high-cost employer health plans- the so-called "Cadillac Tax."
The Cadillac Tax is not scheduled to take effect until 2018, but once it does, there will be a penalty on employer-sponsored health plans that are deemed by the government to be too generous or robust. Beginning in 2018, insurers of employer-sponored insured plans or employers who self-fund their plans will be subject to an excise tax equal to 40% of the excess benefit per covered employee. The excess benefit is the aggregate cost of benefits in excess of $10,200 for single-only coverage and $27,500 for family coverage. These numbers represent the total cost of insurance, not just premiums paid by participants. The values will be adjusted for inflation, and the threshold is higher for plans covering retirees and workers in high-risk jobs. While the tax will be placed on the providers of the plans, it is likely that the increased costs will be passed on to consumers.
One theory behind the Cadillac Tax is that the penalty will encourage employers to select lower-cost plans. This will leave extra funds for employers to pay employees in the form of wages.
Many employers, particularly large employers, have indicated that their plans would be subject to the tax unless their plans are modified. Employers have also expressed concerns that neither they, nor their employees, want to give up plan value to bring the benefits below the Cadillac Tax threshold. Moreover, some employer plans are not voluntarily robust, but instead are costly due to the health status of their workforce or the costs associated with the locale of the plan.
As implementation of health care reform unfolds, employers will want to be wary of the cost of their plans and factor the potential Cadillac Tax into their benefits planning.
