By Lauren Bikoff, MLS
Employers concerned about the Patient Protection and Affordable Care Act’s (ACA) (P.L. 111-148) Cadillac tax should consider implementing a high deductible health plan (HDHP) with a health savings account (HSA), according to a recent brief from HSA Bank. The brief, Now Is the Time to Plan for the Cadillac Tax, noted that HSA-compatible HDHPs are often less expense than traditional plans and less likely to hit the Cadillac tax’s thresholds.
Cadillac tax. Section 9001 of the ACA created the Cadillac tax to act as a revenue offset provision to help pay for the cost of the law. The Cadillac tax is a non-deductible excise tax that will be imposed on the cost of employer-sponsored health programs that exceed an aggregate value of $10,200 for individual employee-only coverage and $27,500 for family coverage. Originally set for 2018, the implementation of the Cadillac tax was delayed until 2020.
Repeal unlikely. The Cadillac tax was designed to help fund the expansion of insurance coverage and encourage employers to make their health plans more efficient, but this provision of the ACA has proved over time to be one of the most unfavorable aspects of the law. Kevin Robertson, senior vice president at HSA Bank, noted in the brief that, “There are major objections to this provision of the ACA. … Even though the tax was initially designed to target disproportionately rich benefit plans, the reality is that due to the structure of the threshold indexing, the tax will likely impact nearly all plans over time.”
The delay in the effective date of the Cadillac tax has provided employers and lawmakers with some breathing room, but it seems unlikely to Robertson that the Cadillac tax will be repealed. “The tax is projected by the Congressional Budget Office to generate about $90 billion in revenue. Any legislative fix would require that, should the tax be repealed entirely, an equal offsetting source of tax revenue will have to be found. This will not be easy in an election year and political reality would prevent changes without an offset in any case,” said Robertson.
HSA plans are a solution. Robertson recommends that employers should investigate HSA-compatible HDHPs. These plan premiums are typically lower than traditional group plan premiums. Robertson believes that “employers are likely to increase their adoption of these arrangements. HSA Bank expects HSA plans to experience a rapid growth as a smart alternative to higher-cost traditional health plans. Because they are often less expensive than traditional plans, HSA plans are a viable alternative that employers concerned about the Cadillac Tax would do well to consider.”
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