One out of four U.S. employers may soon face a steep new Obamacare tax on the insurance coverage they offer workers, unless they take steps to reduce overall spending on the plans.
A new analysis released Tuesday by the Kaiser Family Foundation found that 26 percent of employers offer health benefits that could be subject to the Affordable Care Act’s “Cadillac” tax on high-cost plans when it starts in 2018.
The tax kicks in when the total spending on a health plan — including the employer and employee premium contributions — exceeds $10,022 for an individual or $27,500 for a family. Total spending includes not just the cost of the plan, but also any contributions made to a health savings account or a flexible spending account.
It’s expected to prompt many employers to pare down the benefits they offer in order to duck the tax, which will equal 40 percent of the difference between a plan’s total cost and the allowed threshold.
“The potential of facing [a high-cost plan tax] assessment as soon as 2018 is encouraging employers to assess their current health benefits and consider cost reductions to avoid triggering the tax,” wrote Kaiser’s Gary Claxton and Larry Levitt.
Employers have a number of different levers to pull to escape the tax. They could increase deductibles and other cost-sharing aspects. They could eliminate some previously covered services. They could cap or eliminate tax-free savings accounts used to pay health expenses. They could narrow the network of providers employees can see.
But virtually all of the potential changes would result in employees having to shoulder more of the cost of their health plans.
“For the most part, these changes will result in employees paying for a greater share of their health care out-of-pocket,” Claxton and Levitt wrote.
Kaiser estimates that if healthcare costs keep growing faster than inflation, more employers will be affected by the tax as the years pass. Thirty percent of employers would have at least one affected plan by 2023, rising to 42 percent by 2028, according to the research group.
Lawmakers had two main goals for the Cadillac tax when they included it in President Obama’s 2010 healthcare law: They wanted to raise revenue to help pay for a big part of the law’s new spending, and they wanted to encourage employers to help stem healthcare costs that have traditionally grown faster than inflation.
But it’s increasingly a source of consternation for insurers and employer groups, who have been lobbying hard to get Congress to do away with it. Companies including Cigna, Blue Cross Blue Shield, the American Benefits Council, Pfizer and others have formed a coalition to oppose the tax they’re calling “Alliance to Fight the 40.”
The group sent a letter to Congress late last week, arguing that it would hurt employers’ ability to retain good workers and could cause some to drop insurance coverage altogether.
“While Congress’ original intent was to target only a small number of ‘overly rich’ plans, nonpartisan analyses reveal that it will hit modest health plans that are expensive simply because they are offered in high-cost areas; or because they cover large numbers of people whose health costs are typically higher than average,” the coalition wrote.
