KFF finds employers should shift health care costs back to employees to avoid Cadillac tax.
The number of employers whose health plans exceed thresholds for the high-cost plan tax (HCPT), or Cadillac tax, will grow rapidly between now and 2030, according to the Kaiser Family Foundation (KFF). Employers should find ways to shift some costs back to employees in order to avoid the tax, the KFF advised.
HCPT. Because employer based health benefits are not taxed, employees who get health insurance from their employers may receive thousands of dollars of tax benefits. Excluding employer based health benefits from taxes costs the federal government $300 billion in forgone revenues, the Congressional Budget Office (CBO) estimates. Further, employees with generous health care plans use more health care to take advantage of fewer out-of-pocket costs, contributing to the overall growth in health care spending.
The Patient Protection and Affordable Care Act (ACA) (P.L. 111-148) created the HCPT to address these issues. The HCPT is a 40 percent tax on employers based on the value of plans they provide in excess of designated thresholds. While the HCPT was originally scheduled to take effect in 2018, it has been delayed twice. By 2022, when the law is scheduled to take effect, the CBO estimates the thresholds will be $11,200 for individual coverage and $30,100 for family coverage. The HCPT is projected to raise $193 billion between 2022 and 2029.
Findings. The KFF used information from the 2018 Kaiser Employer Health Benefits Survey to estimate the share of employers with plans exceeding these thresholds, using premiums and employer and employee contributions to HSAs and FSAs. It trended forward the plan costs based on the projected annual per-capita increases in spending in employer-provided coverage. The KFF found that when the HCPT takes effect, about 21 percent of employers offering health benefits will have at least one plan exceeding the HCPT threshold. If FSA contributions are included, the percentage rises to 31 percent. Because not all employees offered an FSA option will make the maximum contribution, there would be some variation in whether the threshold would be reached with some employees compared to others. Because of assumed premium growth, averaging about 4.9 percent, the percentage of employers with a plan reaching the threshold grows rapidly from 28 percent in 2025 to 37 percent in 2030, not including FSA contributions, and 38 percent in 2025 and 46 percent in 2030, including FSA contributions.
The KFF notes that the HCPT provides powerful incentives to stifle the growth of health plan costs, whether through efficiency gains or shifts in costs to employees through higher deductibles or other cost-sharing. Some employers are already amending their health programs in anticipation of 2022, while other employers expect the tax to be delayed again.
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