When it comes to the "Cadillac" tax, there's no escaping death and taxes
By Carol Taylor, Director of Compliance and Health Plan Collaborative
D&S Agency, A UBA Partner Firm
The 2015 UBA Health Plan Survey data reveals who will not escape the 40% excise tax to take effect in 2020. The “Cadillac” tax, now called the excise tax, was originally set to start in 2018, but legislation passed the end of 2015 delayed the start date by two years.
The Patient Protection and Affordable Care Act (ACA) mandated that plans providing coverage that exceeds a threshold value, currently set at annual premiums of $10,200 or more for single coverage or $27,500 for other than single coverage, would be subject to this excise tax of 40%. The thresholds will need to be adjusted for inflation for 2020.
The excise tax was originally intended to be based on ”richer” benefit plans, however, industry experts have been quick to point out that premiums have little to do with the benefit plan design. The age, claims history, geography, and other demographics of group members are more relevant to premium cost.
For example, more remote locations will have higher insurance premium costs due to higher transportation (ambulance, either land or air) claims. Due to their location, 87% of plans in Alaska will be facing the excise tax as of 2020. That state’s current average deductible is more than $1,900, and the current out-of-pocket maximum is just under $4,700. Similarly, 71% of Wyoming employers will also be facing the excise tax, with a current average deductible of $2,125 and a maximum out-of-pocket cost of almost $5,000. Conversely, for New Mexico employers, with a current average deductible of $250, and an average out-of-pocket maximum of less than $1,900, only 33% of their groups will be facing the excise tax.
Health insurance premiums are also directly related to the cost of medical care. Employers with an aging workforce face an uphill battle as there is little they can do to directly affect their premiums without strong nurse coaching and care management programs. The same is true for a group with higher than average claims. Industries that are aging faster than others face steep excise taxes as seen below.
||Plans Subject to
Cadillac Tax in 2020
| Fitness and Recreational Sports Centers
| Insurance Agencies and Brokerages
| Nonprofits/Civic/Community Organizations/Unions
| Schools - Elementary/Secondary/Colleges/Universities
| Offices of Lawyers
| Government/Police/Fire/Political Subdivisions
| Cemeteries/Funeral Homes
| Dry Cleaning/Laundry
| Bus and Other Motor Vehicle Transit Systems/Other
Urban Transit Systems/Commuter Rail
Cemeteries and funeral homes, as well as dry cleaners and laundries, representing mostly small ”Main Street America” companies, will likely drop their coverage, as 72% and 82%, respectively, face the excise tax as of 2020. This gives new meaning to the expressions “there’s no escaping death and taxes” and “getting taken to the cleaners!” Small business employers typically have fewer than 50 employees, so there is no penalty if they drop coverage. Many in these industries will likely add to the rolls of citizens across the country claiming advanced premium tax credits on the insurance Marketplaces, adding to the cost of the ACA for other taxpayers.
Larger companies will also face the dilemma of paying the fines for not offering coverage versus paying premiums and the excise taxes. The table below shows several applicable large employers (ALEs) that would benefit from dropping coverage and paying the per-person fine. The excise taxes on the first example are higher than the employer dropping the coverage and paying the employer shared responsibility per-employee penalty, which is likely to be approximately $3,000 in 2020 (depending on adjustments for inflation).
|| Civic & Social Organization
|| Real Estate Credit
|| Other Individual & Family Services
These employers want to retain good workers and provide medical insurance benefits, but at some point may not be able to keep up with the cost of coverage.
The premiums in these examples assume a 6% annual increase and only count the actual premium dollars, not any other account-based benefits offered. At this time, proposed regulations for the excise tax would also include flexible spending account (FSA) contributions by employees, health reimbursement arrangement (HRA) contributions by employers, and health savings account (HSA) contributions by either the employer or the employee. Several of the employers in the examples above offer one or more account-based benefits to help offset the high out-of-pocket maximums on their plans. The account-based plans will be the first benefits cut if the excise tax remains in effect. These citizens will be hurt financially, as the account-based plans may be their only way to help fund those high out-of-pocket costs.
Health insurance is expensive because health care is expensive. Until we can truly tackle rising health care and prescription costs, insurance premiums will continue to rise faster than general inflation. With more and more people taking monthly prescriptions which cost thousands or even tens of thousands of dollars each month, health insurance premiums will continue to be driven upward, and the number of employers facing the excise tax will grow even faster. The cost of healthcare must be addressed first and foremost, with transparency of costs being a key factor, in order to make any strides on leveling out premium increases.
Download the UBA Health Plan Executive Summary for comprehensive findings on health plan costs. To compare your health plan costs against those in your industry, region and size bracket, request a custom benchmark report from your local UBA Partner.