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Cadillac Tax

5 Ways to Prepare Your Clients for the Cadillac Tax

It’s time to pay attention to the Cadillac tax. This 40 percent excise tax on employer-sponsored benefits deemed “too generous” was included as part of the Affordable Care Act in 2010 and is scheduled to be implemented Jan. 1, 2018. Now, as the IRS prepares to finalize the regulation, the Cadillac tax is a controversy being heavily debated.

In brief, the Cadillac tax may impact employer earnings and increase employee cost-sharing for health insurance coverage. This, of course, has many employers and employees concerned. On the flip side, doing away with it means potentially losing $80 billion the Congressional Budget Office estimates the tax will raise between 2013 and 2023—funds that have been allocated to help pay for Obamacare.1

Because it looks as though some form of the tax is unavoidable, now is the time to become familiar with the issue and begin to help clients who may be impacted.

“January 1, 2018, seems like a ways off, but employer groups to develop a benefits strategy with the Cadillac tax in mind by the end of 2016,” says Dave Keller, Chief Marketing Officer of IHC Specialty Benefits. “Now is the time to reach out to your group clients, examine their risk, and form a plan that allows them to continue offering benefits that maintain employee satisfaction and their bottom line.”

Here are five ways you can form a strategy and prepare your clients:

  1. Start telling employer group clients about the Cadillac tax now. Review their current employee benefits offerings. Do premium amounts for impacted coverage exceed $10,200 for individual plans and $27,500 for family plans (premium amounts in excess of this will be subject to the tax)?2
    But don’t just look at their rates today, consider the impact of as many as three additional rate increases on the plans,” Keller says. “Many groups now have a December renewal date, so they will get their December 2015, ’16 and ’17 increases before the tax takes effect. A group with an $8,000 single rate today that renews in December and has 9 percent rate increases each year will be subject to the tax in 2018.”
  2. Introduce them to a good standalone dental and vision plan. Standalone dental and vision coverage such as IHC’s Flexident group dental and vision plans are excluded from the Cadillac tax. Employers can offer these benefits without risk of penalty.
  3. Tell them about gap plans. IHC’s Metal Gap plan can help employees pay their health insurance deductibles and other out-of-pocket expenses should they experience a covered accident or critical illness.
  4. Discuss breaking up smaller groups and directing employees toward individual plans. It is important to remind the employers that if they pay their employees individual medical premium they may be subject to IRS penalties. Read what we had to say about that last week.
  5. Suggest self-funding as a cost-saving measure. With a self-funded health insurance plan such as IHC’s Simplified Funding Concepts, employers deposit funds into an account set up specifically for their group’s covered medical claims. At the end of the employer’s annual funding limit at the end of the policy year, the employer may apply unused funds to future program costs or request the balance.

For more information on the products mentioned above, please contact your IHC representative.

If you have concerns about the Cadillac tax, now is the time to review proposed regulations, which the IRS has opened for public comment, and contact your congressman or congresswoman.

Legal Disclaimers

1HealthAffairs. “Excise Tax on ‘Cadillac ‘ Plans.” Sept. 12, 2013. http://www.healthaffairs.org/healthpolicybriefs/brief.php?brief_id=99

2Internal Revenue Service. Notice 2015-16. March 9, 2015. http://www.irs.gov/irb/2015-10_IRB/ar04.html