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The Next Big Health Care Reform Provision Every Employer Should Know About


cadillac-tax-hcr-reform.jpgIt's no secret that since the passage of the Affordable Care Act (ACA), the landscape of health care benefits has dramatically shifted over the last few years. Dozens of ACA provisions are already in full swing, but there are more on the horizon. Namely, the much buzzed about “Cadillac Tax” scheduled to take effect on January 1, 2018.

Although it has nothing to do with the luxury automaker, this non-deductible excise tax on high-cost employer-sponsored health coverage earned its nickname from its focus on health benefits that are defined as “excess" or "high-end." Although there aren’t any final regulations issued yet, the IRS released Notice 2015-52 to continue the process of developing regulatory guidance. Here’s what every employer needs to know about the next big ACA provision.

What does the Law Mean?

As the law now stands, both fully insured and self-funded employer health plans will be subject to a 40% excise tax on the value of health insurance benefits that exceed a certain dollar limit. The tax is based on the cost of coverage, including what the employer and employee pay toward the benefits, but not cost-sharing amounts such as deductibles, coinsurance, and copays.

What are the Limits?

Currently, the limit for high-cost plans are $10,200 for individual coverage and $27,500 for family coverage. These limits will be updated in 2018 and every year thereafter to reflect inflation.

Increased Limits

Limits will be increased if the majority of covered employees are in specific high-risk professions such as law enforcement and construction, and for group demographics, including age and gender. For instance, a limit increase would apply to a workforce with a disproportionate amount of older employees.

How It Works

The tax is based on the total cost of each employee’s coverage above the limit amount. See the examples based on the current limits below:

A $12,500 individual plan is $2,300 over the $10,200 limit.
$2,300 x 40% = $920 paid in taxes per employee

A $28,500 family plan is $1,000 over the $27,500 limit.
$1,000 x 40% = $400 paid in taxes per employee

Who Pays?

For insured employers, the employer calculates and the insurer pays. For self-funded employers, the employer calculates and pays.

Surrounded by plenty of discussion and impending regulatory clarification, the final ruling and effect of the “Cadillac Tax” remains to be seen. But, staying ahead of the curve and up to date on ACA provisions can better prepare your business for what’s to come. Consult a professional benefits consultant to gain a better understanding of the complex requirements, compliance responsibilities, and cost-savings steps you can take.

Originally Posted on SWBC's BusinessHub blog.

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