The world of HR has been overwhelmed over the past few years with the madness that is the Affordable Care Act (ACA). With the roll out of this new legislation has come much confusion around the topic. ACA has presented business owners with many new compliance issues to concern themselves with and a lot of new ‘jargon’ to read up on as well. One of those topics is the Cadillac Tax. While it has been delayed (currently until 2020), you will need to be aware of this due to the hefty fines could impose on your business later on.
What is the Cadillac Tax?
The Cadillac Tax is an excess fine for employers who offer high-cost health plans. This fine would place an excise tax of 40% on health plans whose value is more than $10,200 for individual coverage and $27,500 for family coverage. This means as an employer, if you offer health coverage that is more than $10,200 you will pay a 40% tax on the amount exceeding $10,200. For example, if you offer a plan that is valued at $10,500 ($300 over the limit) you will be forced to pay an extra $120 due to Cadillac Tax. The goal of the Cadillac Tax is to encourage employers to offer health coverage that has a shared cost by the employee so that the employee has a true understanding of what health coverage costs.
Who will this Impact?
The tax is not expected to have much impact early on. However with time this is expected to change since the tax is indexed to inflation. Even though this tax has not gone into effect yet, and will not for a few more years, employers are already trying to scale back the value of their benefit plans. Employees may see a decrease in the number of plans available come open enrollment and with these plans a higher deduct may come into play.
How can employers comply?
Some ways to easily adjust your high-cost health plan is to put a cap on health savings accounts (HSA), eliminate previously covered services, and ultimately shift the cost onto the employee by raising deductibles. It is thought that putting a cap on HSAs (and FSAs) will have the biggest impact on high level earners since they are more likely to contribute a substantial amount and their earnings have the biggest gap between pre-tax and post-tax.
The latest announcement regarding Cadillac Tax states it will not go into effect until 2020. However many employers who fall into the high-cost plan category are preparing now to avoid the excise tax.
Want more information regarding the Affordable Care Act and what you need to do to stay in accordance with rules and regulations? Visit our ACA page for more information.