Its implementation may be two years off, but the Affordable Care Act’s so-called “Cadillac Tax” could cause many employers to start adjusting their health plan offerings as early as next year. There are estimates that 33 million Americans will feel the initial round of reductions. The high-cost plan tax, often referred to as the Cadillac Tax, is scheduled to hit employers in 2018, and it’s already affecting calculations as businesses plan for the future.
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The Cadillac tax was intended to raise revenues to fund coverage expansion under the Affordable Care Act. The risk is that middle-class workers could see their job-based benefits diminished.
By 2028, more than half of all employers could potentially face the tax, according to a report this week by the nonpartisan Kaiser Family Foundation. That’s because employer-provided health benefits aren’t taxed like compensation is, so employees can reap sizable tax breaks. Offering individuals the same tax-free benefits for health care spending as corporations would reduce consumers’ reliance on their employers, and expanding the use of HSAs would give people more control over their own spending while incentivizing health care providers to compete on price. It may be pretty far in the distance, but if you’re an employer and you’re moving along at a reasonable clip in the same lane – say, 60 miles per hour – and you don’t slow down, you’re going to run smack into it.
Contributions (including employee-elected payroll deductions and nonelective employer contributions) to a flexible spending account.
Flexible spending accounts, which allow people to save their own money tax free for everything from doctor co-pays to eyeglasses, may vanish in coming years as companies scramble to avoid the law’s 40 percent levy on pricey health care benefits.
“It’s a dying knell for them”, Wealthy Stover, a healthcare actuary and principal at Buck Consultants, . Since it doesn’t take effect right away, it’s an issue for the next president.
Democratic presidential front-runner Hillary Clinton says she would re-examine the tax because it might shift more costs to workers.
Since the adoption of the ACA in 2010, the Cadillac Tax has faced widespread scrutiny and many lawmakers, policymakers and employers have called for a significant modification to or outright repeal of the tax. “Obamacare continues to overpromise and underdeliver”, said Sen. The Cadillac tax is the ACA’s way of dealing with this problem, which has only grown more pronounced over the decades as health-care spending outstripped inflation. Generous plans that exceed that limit will be taxed at higher rates.
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Because of the way the tax is calculated, it can differ for employees who work for the same company or those who are in the same healthcare plan. The reason for the latter is that, since employer-provided coverage is tax free, while wages are not, employers are being “too generous” with benefits, and that is driving up the cost of health care.
