When the Affordable Care Act was passed in 2010, one of its many controversial provisions was the addition of Section 4980I to the Internal Revenue Code, also known as the “Cadillac” Health Excise Tax. The Cadillac tax imposes a 40 percent excise tax on a health plan’s excess benefits over specified thresholds — $10,200 for individual coverage and $27,500 for family coverage. The definition of the health plan’s value includes all benefits, including employer contributions to flexible spending accounts and wellness programs.
Originally set to go into effect in 2013, the Cadillac tax was first delayed until 2018 by the Health Care & Education Reconciliation Act of 2010, then again when President Obama signed a spending and tax bill in December of 2015, pushing the effective date to 2020.
The tax is unpopular with employers and many lawmakers alike. It was originally intended to target only a small number of lavish health plans enjoyed by very few employees. However, the threshold on which the tax is imposed has been indexed to general inflation, which historically grows slower than health care costs. A Towers Watson study estimated that by 2023, 82 percent of U.S. employers could be subject to the tax.
With the continued implementation delays and both Republican and Democratic presidential candidates supporting full repeal of the provision, there is a distinct possibility that the law will be eliminated or at least rewritten to reduce the number of employers affected. Nonetheless, some employers have already begun preparing for implementation. Here’s how consumers are affected:
Plans are being redesigned to implement higher co-pays and deductibles.
Employers are moving toward high-deductible health plans with employer contributions to a health savings account.
The sizes of provider networks are shrinking.
Companies are restricting spouses from joining health plans if they are eligible for benefits elsewhere.