Cadillac Tax Basics
As the first day of open enrollment for 2016 health care policies get closer and closer, you may be trying to figure out just how the Affordable Care Act’s (ACA) high-cost plan tax (HCTP), also known as the “Cadillac plan” tax will affect your employee benefits. The Cadillac plan tax will take effect in 2018.
Although 2018 is still a couple of years away, right now is the perfect time to make sure that you know how to avoid paying the high tax at your business by considering various cost reductions. Making changes within your company now can help you avoid any serious disruptions later on. Some of the first steps that you should take to reduce the costs under the tax include:
- Eliminating any covered services
- Increasing policy deductibles and other cost-sharing options
- Eliminating any high-cost health insurance options
- Eliminating or capping tax-preferred savings accounts such as Health Savings Accounts (HSAs), Flexible Spending Accounts (FSAs), or Health Reimbursement Arrangements (HRAs).
- Using narrower and less expensive provider networks
- Offering benefits through a private exchange that will help to cap the value on plan choices to ensure that they stay under the threshold.
In general, these changes will mean the employer will be paying for more of their healthcare benefits out of their own pocket.
The HCPT was intended to raise revenue to cover the cost of ACA coverage expansion and discourage employers from offering overly generous benefit plans to their employees to help contain health care spending. It will tax plans that exceed specific thresholds, which are $10,200 for self-only coverage and $27,500 for any policies other than self-only coverage. The tax will increase annually to keep up with inflation.