When the ACA passed in 2010, one of its most publicized and controversial provisions was the “Cadillac tax.” The notion that even a portion of employer sponsored healthcare would be subject to taxation, for the first time, sent shivers down the spines of benefit managers and consultants everywhere. However, many shrugged off the provision as a distant and uncertain detail in a mammoth piece of legislation.
Nearly four years later, more employers have begun inquiring about this much-publicized feature of the ACA and its potential impact on their benefit program. Here are the facts:
1) The Cadillac tax is scheduled to levy a 40% excise tax in 2018 on any premium dollar that exceeds $10,200 for a single and $27,500 for a family
2) Those thresholds may yet change should the Federal Employee Health Benefits Program trend at greater than 6% between 2010 and 2018
3) After 2018, the thresholds will be tied to CPI+1% in the initial two years and then to CPI in subsequent years
4) The CBO projected this provision would raise $32B, or 3% of all revenue raised by the ACA, in its first 10 years
ACA put a 60% minimum-value floor in place in 2014 and the Cadillac was to put a ceiling on the value of coverage. As we have seen, that floor is looking increasingly creaky. I don’t presume the ceiling will be any sturdier. Employers cover over 160 million people through their healthcare plans. Industry estimates suggest that on their current course, between 55% and 75% of these plans will pierce the Cadillac threshold in the next ten years. Avoiding the tax would require massive benefit reductions and shifting hard costs onto employees. Then consider the sectors typically issued premier plans–municipalities, labor, financial services and legal services–and you’ll quickly see that the political interests of the sectors will likely align to modify or abolish this provision.
While it is prudent for employers to begin planning for every eventuality, I believe it’s extraordinarily unlikely this Cadillac will stay on the road.