Taxing “luxury:” Preparing for the Cadillac tax with a private exchange
The Cadillac tax is a lightning rod of the Affordable Care Act. Since it was included in the bill, it has been hotly debated, revised and now faces a barrage of repeal efforts. The tax carries significant financial implications for stakeholders across the health insurance ecosystem – from individual consumers to employers to solution providers to insurers – making it critical to understand what exactly the Cadillac tax is, expected outcomes once it is introduced and, most importantly, ways that key players can offset the effects of the tax in a way that preserves financial solvency.
As its luxury-evoking name implies, the Cadillac tax is a 40 percent excise tax planned to be levied in 2018 on high-cost health plans with annual premiums over $10,200 for individuals or $27,500 for families. Various industry groups have researched and developed projections around the potential impacts of this upcoming tax. Opinions vary, but a wealth of data points to likely downsides. A study conducted by the American Health Policy Institute in December 2014 stated that the tax is anticipated to hit 17 percent of all American businesses, and 38 percent of large employers. Because the threshold for the tax is calculated using Consumer Price Index growth and not medical inflation, by 2031 typical family plans could be subject to the 40 percent tax. The independent organization Kaiser Family Foundation has predicted similar eventualities. These troubling projections are leading many to question whether or not this is really a tax on luxury, as it was initially positioned, or instead a burden on average employers and consumers.