The Affordable Care Act has certainly had its share of controversies since it was signed into law in 2014, and another one is starting to make headlines and cause concern. The so-called “Cadillac Tax”, which is an excise tax, is set to hit employers of all sizes in a few years. For business owners and large companies, the Cadillac Tax will have significant implications.
What is the Cadillac Tax?
The term “Cadillac Tax” was meant to refer to lavish, premium healthcare plans, but it’s actually somewhat of a misnomer. It’s an excise tax (an indirect tax not applied by the government) that is intended for health insurance plans that are employer-sponsored. If the premiums for the plan exceed $27,500 for families or $10,200 for individuals, the sponsor will be hit with a 40% excise tax. It’s important to note that the Cadillac Tax doesn’t go into effect until 2018, but it’s wise for companies to start planning ahead for it now. The annual limit is also subject to change, as health care costs are likely to rise, and other circumstances are taken into consideration, including age, cost of living adjustments, etc.
How does it impact employers and employees?
Since many employers sponsor health insurance policies for their employees, this tax will have a direct impact on business owners. It’s something that needs to be taken into consideration already, as it’s important to plan ahead. As a business owner, you will need to start considering how this will affect the budget if you do offer health insurance to your workers.
Some employers will be looking to shift the burden of this increase to their employees. That means that the Cadillac Tax could be the first time that employers essentially place a tax on health benefits for their workers. As an employer, this puts you in a tough spot.
What actions can you take today regarding the Cadillac Tax’s impact on your company?
Now is the time to start thinking about making changes to the health insurance plans that you provide to your workers. As an employer, one of the best things you can do right now is set up a High Deductible Health Plan (HDHP) migration strategy. In addition to helping you delay the application of the Cadillac Tax, an HDHP offers your organization and employees a number of advantages:
- Lower costs. The adoption of HDHPs has been a contributing factor in the slowing of health care costs. Research shows that the cost of coverage in an HDHP is 17 to 21 percent lower, on average, than the cost of other plans.
- Savings accumulator. HDHPs generally are paired with HSAs, which help your employees accumulate savings to pay for qualified medical expenses both now and in retirement. An HSA offers triple tax savings: money goes in pretax, can grow tax free, and withdrawals to pay for qualified medical expenses are not taxable on the federal level.
- HDHPs can help improve transparency. When participants are made aware of the true cost of care —what they incur along the way towards meeting their HDHP deductible — they are often more likely to take an active role in the process. This may help to create a better dialogue with their physician and other providers — as patients are empowered to ask more questions about the appropriateness of their care, and about ways to help lower costs.
- Your employees may not see an HDHP and an HSA as an important way to lower their health care costs or as a key part of their retirement planning. You can help make that picture clearer for them. HDHPs and HSAs can put the power in employees’ hands as they realize that they may be able to better control their health care spending, enjoy potential tax benefits, and save for qualified medical expenses both now and in the future.
- In addition to recognizing the cost savings they can achieve from HDHP participation, HDHPs can foster employee consumerism and wellness engagement. These efforts can help motivate employees to better engage in health improvement initiatives and offer more choice and flexibility in how they consume health care services.
As you can see, there’s no simple answer for the best solution when it comes to how to handle the Cadillac tax. Your company will need to look closely at all of the options, and make the changes that best suits your employees and your business.
Obeo Health can help: Our tools simplify your HDHP migration strategy, improve employee knowledge and foster greater employee engagement.
Request a demo today to learn more!