A 40 percent tax on already-expensive health care plans will open them even wider. That’s what’s coming in 2018 for Americans behind the wheels of “Cadillac” health insurance plans.
“Cadillac” is a name identified for generations as expensive cars with numerous luxury options. In popular culture, “Cadillac” has become synonymous with just about anything expensive or fancy. In today’s health care world, that includes costly health insurance plans with an extensive array of coverages and services.
An employer-sponsored Cadillac plan isn’t taxed as wages. This means that employers can contribute to paying for these plans without their employees’ wages – or the employers themselves – being taxed more for federal income taxes, Social Security, Medicare, etc. The government is concerned about Cadillac plans for a number of reasons, money being a prime factor. The Affordable Care Act costs money. The 40 percent excise tax will help pay for the ACA.
If an employee has an expensive plan for which someone else is paying the bulk of the cost, the employee – and family – might be tempted to make more use of the plan, perhaps unnecessarily. This, it’s contended, drives up health care costs for everyone.
The tax is controversial, as the New York Times reported on May 27, 2013 in an article headlined, “High-end Health Plans Scale Back to Avoid ‘Cadillac Tax”.
“While most of the attention on the Obama administration’s health care law has been on providing coverage to tens of millions of uninsured Americans by 2014, workers with employer-paid health insurance are also beginning to feel the effects. Companies hoping to avoid the tax are beginning to scale back the more generous health benefits they have traditionally offered and to look harder for ways to bring down the overall cost of care.
“In a way, the changes are right in line with the administration’s plan: To encourage employers to move away from plans that insulate workers from the cost of care and often lead to excessive procedures and tests, and galvanize employers to try to control ever-increasing medical costs. But the tax remains one of the law’s most controversial provisions."
The excise tax will affect health plans with cost of coverage greater than $10,200 for individual coverage and $27,500 for self-and-spouse or family coverage. Any figure above those limits is considered excess spending for a health insurance plan and will be taxed at the 40% rate. The cost of coverage includes the total premiums paid by the employer and the employees. The cost does not include payments for care such as deductibles or co-pays.
As the New York Times article indicates, employers are starting to decide where, and how, they’ll change their programs to avoid the Cadillac tax. Thus, if you are an employer paying for, or an employee receiving benefits from, a Cadillac plan, you’re about to have to decide whether you’re willing to pay the price. That’s why there’s a good chance most, or all, Cadillac plans will go the way of the Pontiac and Oldsmobile, and just disappear.