Avoiding The Cadillac Tax

by Holley Maher

Only a few health care issues unite Hillary Clinton with congressional Republicans or unions with the private business market; opposition to the Cadillac tax is one of those things. With a name like “Cadillac” tax, one might think the government imposed a tax on expensive cars.  Nope. The Cadillac tax is a 40% excise tax on the “excess benefit” (cost) of any employer-sponsored group health plan with annual costs that exceed $10,200 for a single or $27,500 for a family ($850 and $2,292 per month, respectively).

$10,200 and $27,500 are pretty high numbers. However, when you consider that insurance premiums increase 8 to 10% per year (perhaps more if community rating applies) and the Cadillac tax applies to the employer and employee contributions to health insurance as well as FSA/HSA contributions, health reimbursement arrangements, etc., you can see why many employers are concerned and beginning to develop strategies today to ensure they avoid the expensive excise tax. 

Change is always hard, especially when it affects all your full-time employees, so developing a plan in 2016 will help minimize any disruption (or surprises) in 2018. What are some of the strategies employers may choose to implement?

• Change plan design – increase deductible, copays, etc.
• Narrow network – smaller network of doctors/hospitals
• Reduce FSA/HSA funding – eliminate pretax payroll deductions
• Aggressive wellness plan – a long-term yet effective strategy
• Spousal waivers – reduce or eliminate the number of covered spouses
• Post-tax benefits – this may be a good change regardless of the Cadillac tax
• Self-insurance – a good solution for a healthy group of employees   
• Private exchanges – a technology platform to provide employee choice (and minimize disruption if plan changes are in order) n

Holley Maher (hmaher@SmartBenefitsPlus.com) is a partner at Maher, Rosenheim, Comfort & Tabash LLC, specializing in group and individual insurance.