Dive Brief:
- A new report from the Henry J. Kaiser Family Foundation examines the potential effects of the Affordable Care Act's "Cadillac tax," a controversial measure intended to reign in healthcare spending via a hefty surcharge on high-cost employer sponsored health insurance plans.
- The report finds a likely consequence of the tax is employers will begin shifting considerable costs to employees via higher premiums or other cost-sharing; utilizing narrow networks; eliminating high-cost health plans; and, in one approach that has yet to receive much attention, capping or eliminating tax-preferred health savings accounts such as FSAs, HSAs, and HRAs.
- The tax is not slated to go into effect until 2018, but employers are already gearing up for the change and discussing possible methods of avoiding the tax, such as instituting private insurance exchanges which do not offer plans that would trigger the 40% surcharge.
Dive Insight:
The tax may not be slated to go into effect for another two and a half years, but it's already causing significant consternation among employers and labor unions. And as the Kaiser report underscores, the full extent of the tax's effect on employer sponsored plans has yet to be realized.
Tax-preferred savings accounts will be hit by the tax because an employer's contributions to these accounts count towards the overall cost of a health plans as measured by the ACA. There are certain exceptions for sicker and older employees that change the specific structure of the tax.
"The amount and structure of the [Cadillac tax] provide a strong incentive for employers to avoid hitting the thresholds," wrote the study authors. "The tax rate of 40% is high relative to the tax that many employees would pay if the benefits were merely taxed like other compensation, and the ACA does not allow the taxpayers (e.g., the employer) to deduct the tax as a cost of doing business, which can significantly increase the tax incidence for for-profit companies."
Stay tuned for a more in-depth look at the Kaiser report and the implications of the Cadillac tax.