Aug 26, 2015 - 10:00am

Cadillac Tax on Collision Course for One in Four Companies

Executive Director, Strategic Communications


U.S. money

Here’s an alarming exercise for you small business owners on Main Street.

First, take a look at the storefront across the street. Next, look next door at the businesses on either side of yours. One of you is likely to see a massive new health insurance tax coming your way in the coming years under the health care law.

No, not one of the many new penalties and fines you have probably heard about already. Starting in 2018, this particular rule - often called the Cadillac tax or excise tax - will hit companies with a new 40 percent penalty on health insurance plans deemed too expensive under the Affordable Care Act.

How many companies, you ask? One in four employers currently offers plans that would trigger the tax, according to a new analysis by the Kaiser Family Foundation. By 2028, due to the way the threshold was poorly linked to inflation, 42 percent of businesses are expected to offer such plans. If health costs rise even slightly faster than expected, the tax could hit more than half of U.S. firms, the analysis found.

Most of the employers subject to the tax would be small businesses.

"Over time, the expectation is virtually every employer will be subject to the Cadillac tax." Larry Levitt, senior vice president of the Kaiser Family Foundation, told CNBC. He later added that the rule will prompt many companies to cut back on benefits.

“The breadth of effects from this tax grow significantly over time, and eventually the vast majority of workers will find themselves with changes in their health benefits as [a result] of this tax,” Levitt said.

Wait a minute. Do the vast majority of workers have “really fancy plans,” as President Obama described them when defending the Cadillac tax? No, of course they don’t. The problem is that the threshold for which plans are adequate and which are too lavish was set too low and based on a flawed inflation measure.

Some have noted that even health plans that have been celebrated for lowering costs will soon be subject to the Cadillac tax. Out west, for instance, the California Public Employees’ Retirement System - which has been touted as a gold standard in lowering health costs - would be hit with the excise tax.

Making matters all the more complicated, Kaiser’s researchers point out, is that a company’s Cadillac tax costs can vary from employee to employee, even if they are enrolled in the very same health plan. So, aside from potentially paying the penalty, simply determining whether there’s a penalty to be paid could be a nightmare for large and small employers across the country.

Tell Congress to Nix the Excise Tax

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About the Author

About the Author

J.D. Harrison
Executive Director, Strategic Communications

J.D. Harrison is the Executive Director for Strategic Communications at the U.S. Chamber of Commerce.