As employers are currently preparing for the changes to the health insurance system that will take place in 2014, the additional changes occurring in 2018 may seem like an afterthought. Employers, however, should begin planning for the effects of an excise tax on high-cost health coverage that will be implemented in 2018. This tax is known as the “Cadillac Tax” because, in part, it targets the most generous plans.
Starting in 2018, the law will impose a 40% excise tax on the portion of employer-sponsored health coverage that generally exceeds $10,200 a year for single coverage and $27,500 for families, to be indexed annually. There are exemptions for certain types of coverage such as long term care coverage, dental and vision coverage, and certain types of non-coordinated coverage. Additionally, there are exceptions for coverage offered to retirees and coverage offered by employers that have a majority of their employees working in “high-risk professions.”
The excise tax on excess health benefits is designed to offset some of the costs of other provisions of the PPACA by raising revenue for the federal government and to encourage employers and employees to work towards controlling health care costs. Although the tax does not begin until 2018, employers should begin planning now as implementing any changes may take some time.