Study: Large Employers Taking Steps to Avoid ‘Cadillac Tax’

The looming “Cadillac tax” on health insurance plans isn't exclusive to just luxury models.

According to a new study from the American Health Policy Institute (AHPI), nearly one-third of large employers expect at least one of their health insurance plans will be impacted in 2018, the year this Affordable Care Act tax finally kicks in. But nearly nine out of every 10 large employers are already taking steps to avoid the excise tax.

The AHPI, a nonprofit organization dedicated to examining key healthcare issues on large employers, released the study, ACA Excise Tax: Cutting Family Budgets, Not Health Care Budgets, on Oct. 7, which analyzes trends relating to the Cadillac tax. It features two new surveys of large employers, one conducted in June and one in September, that identifies how many companies would be affected by the tax and what steps they are planning to minimize their exposure.

As the name implies, a “Cadillac plan” is the term used to describe a health insurance plan providing top-of-the-line benefits. Under the Affordable Care Act, employers will be required to pay an excise tax on a plan costing more than $10,200 for an individual or $27,500 for a family. The tax is equal to 40 percent of the cost of premiums above the stated thresholds.

The Cadillac tax officially takes effect on Jan. 1, 2018. For subsequent years, the dollar thresholds will be indexed for inflation. In the meantime, employers and employees are both concerned that the tax will be passed along in the form of higher deductibles or premiums. In some cases, plans might even be shut down or replaced by cheaper versions.

Some other key findings of the two AHPI surveys are as follows:

• Nearly half of the large employers surveyed that did not have plans hitting the excise tax in 2018 said they would have a plan that would be impacted by 2023.
• Almost 19 percent of large employers were already curtailing or eliminating employee contributions to flexible spending accounts in order to avoid triggering the excise tax.
• Almost 13 percent were already curtailing or eliminating employee contributions to health savings accounts.
• Among employers that are going to reduce the values of their plans as a result of the excise tax, 71 percent said they probably would not provide a corresponding wage increase. Also, 16 percent indicated they would raise wages in response to benefit cuts.

“The real problem with the excise tax, and the reason that it generates so much bipartisan opposition, is due to the impact it has on American workers,” AHPI President Dr. Tevi Troy said in a written statement. “Even though the tax has not yet gone into effect, American businesses are already taking steps to avoid hitting Cadillac Tax thresholds, and those actions will be hitting more and more workers over time.”

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