Avoid Dollar Guzzling ACA “Cadillac Tax”

Employers have been pummeled with change after change in the five (5) years since enactment of the Affordable Care Act (ACA). With many of the Act’s changes now implemented or well under way, there remains one provision that has many employers feeling anxious.

 The provision creating this anxiety is the 40% excise tax on the cost of employer-sponsored coverage over a threshold amount that will take effect for tax years beginning after December 31, 2017. The thresholds to trigger the excise tax will be $10,200 for self-only coverage and $27,500 for other than self-only coverage.

 IRS Notice 2015-16 was published in late February addressing this impending tax. However, the notice asked more questions than it answered. The notice can be accessed from the Hot Issues page on the IRS website at http://www.irs.gov/Businesses/Small-Businesses-&-Self-Employed/IMRS-Hot-Issues.

 While employers didn’t get the answers they were looking for in the notice, it can serve as a reminder to employers – and their broker advisors – that now is a good time to strategize on possible actions to mitigate or avoid this impending tax.

Employers should assess the current premiums for their plans and extrapolate where their costs may be come 2018. If their plan costs will trigger the Cadillac tax, it may be time to consider alternatives. These may include:

  • Higher deductibles
  • Higher out-of-pocket expenses
  • Lower subsidies for spouses or dependents
  • Limiting contributions to HSAs, FSAs and HRAs
  • Revisiting COBRA applicable premium calculations for self- funded plans
  • Offsetting any premium reductions on increases in payroll taxes. 

Some employers will want to “ease off the gas” by making changes in their health plans in each of the coming years. Others may be comfortable “jamming on the brakes” to avoid crashing into the excise tax in 2018. And, many will have their fingers crossed that Congress takes action and takes this tax model off the market!