What is the Cadillac Tax, and What Does It Mean for Your Health Insurance?

You might have heard about the “Cadillac Tax” in the news recently. Policymakers added this aspect, part of the Affordable Care Act (ACA) that goes into effect in the future, to essentially tax coverage that goes above the average limits. However, as healthcare premiums rise, the tax will affect many more individuals.
What is It?
The “Cadillac Tax” is an excise tax originally created to cut down on excessive benefits, which would have led employers to overspend. While it keeps policies in check, the tax would lead to funding the ACA’s insurance subsidies.
However, Forbes and other publications pointed out after a recent report that far more than those with high-level plans will fall within this scope. Instead, the government may indirectly penalize those with severe and chronic illnesses, who automatically pay higher premiums.
When Will It Go Into Effect?
The government will unveil the “Cadillac Tax” in 2018. At that point, policyholders who pay more than $10,200 annually in individual premiums or $27,500 for a family will be taxed 40 percent.
How will this work? The amount above the limit – not the full policy – will be taxed the 40 percent, and the policyholder will be expected to pay that per year, with no exemption. Unlike out-of-pocket healthcare premiums, the taxed amount will not be deductible.
The Issues
All of this seems fair on paper, but analysts have pointed to a few significant issues that may create a far bigger impact than predicted:

  • The Medical Consumer Price Index will increase by then, pushing more people above the limit. It’s estimated that 26 percent of employers and employees may be affected.
  • The cost of living. Those residing in more expensive parts of the country may find themselves affected.
  • Employers may change coverage options to lower their taxes. Strategies may include higher deductibles and greater cost-sharing plans.
  • Workers may see their benefits disappear, including HSAs and FSAs.

If yoy’re concerned about the Cadillac Tax, evaluate what you might have for healthcare premiums three years down the road, or prepare to shop around for new coverage. To start, contact Ion Insurance to speak with an agent.