The Majority of Health Plans Will Have to Pay The Cadillac Tax

According to a study conducted by Towers Watson, more than 60% of large employers will be hit with the “Cadillac Plan” excise tax by the provision’s 2018 effective date.

The provision, included in the recently enacted health care reform bill, levies a 40% non-deductible excise tax on the annual value of health plan costs if the premiums exceed $10,200 for employees and $27,500 for family coverage in 2018.

While those amounts may seem high, Towers Watson data reveals a 2010 average cost of medical insurance at $5,184 for single coverage and $14,988 for family. When these numbers are projected out to the year 2018 using reasonable inflation figures, the excise tax will be triggered.

Even though 2018 is several years away, employers need to be mindful of what may happen as these things have a way of sneaking up on you. In particular, employers need to be thinking about the potential impact on any retiree plans they may sponsor. These plans tend to have a higher cost per members and could very well trigger the excise tax. Even though the tax is many years away, the employer might be required to recognize it in today’s financial statements as a future liability.