Summary: The Cadillac Tax will tax insurance companies on excess premiums charging above certain thresholds for singles and families.
What is the “Cadillac Tax”?
The Cadillac Tax is imposed on insurance companies who offer plans with premiums totaling more than $10,200 for single coverage and more than $27,500 for family coverage. The amount of premium in excess of these thresholds will be taxed at 40% starting in 2018.
What is the purpose of the Cadillac tax?
The purpose is to provide both ownership and accountability to the consumer. The tax shifts responsibility from the insurance company to a joint sharing between insured and insurer. Currently, those who have low deductible plans may not think twice before scheduling procedures and tests that may not actually be necessary. When you have to pay for a significant portion of these tests out of pocket prior to reaching your deductible, cost becomes a deciding factor.
How do plans avoid the “Cadillac Tax”?
Companies are already beginning to scale down their plans by increasing deductibles and co-pays to bring higher premium plans in line with the provisions of the ACA on a gradual basis from now until 2018.
Who is going to pay for the Cadillac tax?
You guessed it. Eventually the consumer will share the burden of the excise tax. The tax will be assessed to the insurance companies, however, you can bet the excise tax will be passed along to the consumer in the form or premium increases. So evidently, the days of the low deductibles in lieu of higher premiums is going out the window which will assist in once again balancing premiums across the board. Not only will healthy/non-healthy and older/younger consumers have similar premiums but there will be less variation in the plans offered. The platinum plans as well as maybe some of the gold plans might just go away leaving only the bronze and the silver. Are we headed towards universal healthcare?
Where do the unions stand on the Cadillac tax?
Well, this is an interesting aspect. Labor unions generally try to increase health benefits for their members. The ACA is trying to reduce benefits at the higher end of the spectrum and reduce premiums. There is fear among unions that the Cadillac tax may lead job losses and stagnant wages especially among municipal employees. Since state and local governments typically offer pricier health plans than private businesses, they may bear a bigger burden under the Cadillac tax. Originally, the Cadillac tax was slated to become effective in 2014. As an act of bargaining, the unions were able to negotiate an exemption until 2018. Now it appears that the Cadillac tax will be effective for all starting in 2018. You can expect to see the unions strongly negotiating for an extension for their members over the next couple of years. I would expect the unions to be in the forefront as this tax effective date is rapidly approaching.
Why is President Obama so gung ho on this tax?
The tax is slated to bring in over $80 billion (yes billion) over the next decade so there is the monetary aspect. The tax will also help him obtain his primary goal – slowing the increase in healthcare spending. Will taxing high premium plans reduce the costs associated with non-essential benefits as this is an area which requires substantial cutbacks?
About BHM Healthcare Solutions – www.bhmpc.com
BHM is a healthcare management consulting firm whose specialty is optimizing profitability while improving care in a variety of health care settings. BHM has worked both nationally and internationally with managed care organizations, providers, hospitals, and insurers. In addition to this BHM offers a wide breadth of services ranging including managed care consulting, strategic planning and organizational analysis, accreditation consulting, healthcare financial analysis, physician advisor/peer review, and organizational development.