Is it a tax on Cadillacs or Buicks?

When Congress returns after Labor Day, expect a surge of news about the so-called Cadillac tax – a 40 percent excise tax on high-cost health plans offered by employers. Starting in 2018, if premiums exceed more than $10,200 for an individual health plan or $27,500 for a family health plan, every dollar that exceeds those thresholds will be taxed 40 percent.

The law requires the “coverage provider” to pay the tax. So insurers pay for fully covered plans and the employers themselves for self-insured plans.

Repeal debate

A recently formed coalition of labor, business leaders, and health plans has called for a repeal of the Cadillac tax arguing businesses should be allowed to continue providing employer-sponsored health coverage without facing new taxes or being forced to reduce benefits.  Others – including The New York Times Editorial Board – support it while acknowledging the statute's limitations.

Republicans and some Democrats in Congress are pressing to repeal the Cadillac tax, with Republican Senator Dean Heller slated to introduce legislation after Congress resumes. But both parties face tricky politics in repealing the tax because it would need to be replaced by another Affordable Care Act funding mechanism – at least $80 billion – and that is not easy money to find elsewhere.

Employers shift into gear

While up to 42 percent of employers may be affected, the actual number of employees whose benefits are targeted may be far lower, according to U.S. Treasury estimates. That’s because not every employee at a company has the same rich benefits. Still, many companies are considering ways to mitigate or avoid the tax.

At the very least, employers will be evaluating when they will first incur the Cadillac tax. That’s because the tax will apply unequally across the country – businesses that are located in areas with high health care costs will incur the Cadillac tax sooner than employers offering comparable plans in lower cost regions.

Employers will also be evaluating their plan design options. They may look to raise deductibles on health plans to lower premiums, eliminate some covered services, and tailor networks to avoid higher cost medical providers. They could also limit or eliminate Health Savings Accounts (HSAs) and Flexible Spending Arrangements (FSAs) because both employer and employee contributions count toward Cadillac tax thresholds.

Employer education

As the debate continues, health insurers, including Regence, are working with their employer groups to help them understand their health insurance coverage options leading up to 2018.

Stay tuned for more updates.