Roughly half of large U.S. employers will begin to hit the thresholds triggering the Affordable Care Act’s (ACA’s) excise tax on high-value plans in 2018, and the percentage is expected to rise significantly in subsequent years.

The excise or “Cadillac” tax is a 40 percent tax on the value of all participant-elected health care benefits that exceed certain dollar thresholds in 2018 and beyond. The thresholds under the ACA are $10,200 for individual coverage and $27,500 for family coverage. The actual thresholds will be adjusted based on inflation between 2010 (the year of the ACA’s enactment) and 2018, and annually thereafter.

The employer must pay the nondeductible excise tax, although some employers are contemplating charging the tax back to plan participants.

A study of employers with 5,000 or more employees, revealed that:

A 2014 survey found that 73 percent of companies are very or somewhat concerned that they will trigger the tax, and 62 percent say it will have a moderate or greater impact on their health care strategy in 2015 and 2016.

Unless action is taken, the excise tax will be a question of when, not if, for most employers.

The Broad Sweep of the Value Calculation

Some key factors about the excise tax that are not well known:

A Wider Net

In 2018 and 2019, annual increases in the excise tax thresholds will not be based on health care cost inflation, but instead on the Consumer Price Index (CPI) plus 1 percent, and CPI only thereafter. CPI was 1.5 percent for 2013—considerably less than the 4 percent annual health care cost increase that better-performing employer health plans are expected to achieve in 2015 after plan changes. As a result, if health care inflation continues to outpace the general rate of inflation, a growing number of plans will exceed the excise tax threshold.

Companies need to improve their health program performance to achieve or maintain a high-performance health plan. With proper plan management, the impact of the tax can be significantly mitigated.

If you are a current Paypro Benefits client and you need help with your plan management, please reach out to your dedicated Paypro Benefits Specialist.

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