Garrett Fenton Quoted Regarding the "Cadillac Tax" in SHRM Online

"Cadillac Tax Sets Employers on Edge"
SHRM Online

Garrett Fenton was quoted regarding the "Cadillac tax" on higher-cost employer-sponsored health plans under the ACA scheduled to take effect in 2018. "The Cadillac tax essentially is a 40 percent nondeductible excise tax that will be imposed on employer-sponsored health coverage, to the extent that the total cost or value of that coverage for a given employee for a year exceeds a specified threshold amount. But those numbers could be increased in certain circumstances," Fenton said, adding that the cost of coverage for each employee will be determined as a cumulative total of all employer contributions, flexible spending, health savings, and health reimbursement accounts, onsite medical clinics, and other wellness programs. Employers will be required to report the total cost of each employee's coverage to determine if they are subject to the tax.

When the tax goes into effect, plan administrators and insurers close to the threshold will probably evaluate how to reduce the value of insurance plans to prevent the application of the tax. Ensuring that the total cost or value of each employee's coverage, including both employer and employee contributions, does not exceed the threshold amount for each year beginning in 2018, "may prove to be difficult, particularly in future years," Fenton said. "Employers may wish to consider redesigning their plans -- and perhaps increasing their deductibles, co-payments or out-of-pocket limits -- in an effort to avoid the tax. But even that could provide merely a temporary respite." Fenton added that the threshold amounts currently are indexed for inflation at a rate that has been much lower than actual medical inflation and, "if the cost of medical care continues to increase at or near its historical rates, many employers will likely 'drift in' to being subject to the Cadillac tax over time, even if they are not initially subject to the tax in 2018."

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