Implementing Health Reform: Beginning The Cadillac Tax Regulatory Conversation And Other ACA News (Updated)
February 24th, 2015
The Cadillac high-cost health plan excise tax, which goes into effect in 2018, is one of the last-to-be-implemented provisions of the Affordable Care Act (ACA). It was one of the most controversial provisions of the ACA, which contributed to its delayed effective date. But 2018 is now getting closer, and the Internal Revenue Services (IRS) is beginning a discussion about implementation of the Cadillac plan tax.
The Cadillac plan provision of the ACA will impose a 40 percent excise tax on the cost of employer-sponsored health plans when that cost exceeds certain thresholds. It is projected to be one of the biggest sources of revenue under the ACA; the Congressional Budget Office (CBO) in its 2015 Budget and Economic Outlook Report estimated that it would account for $149 billion in revenue between 2018 and 2225. Of this, however, only one quarter will come from the tax itself, while three quarters will come from increases in taxes on income as employers shift compensation from health benefits to taxable wages.
While the tax will affect few plans initially, it is likely to affect many more plans over time as the cost of health care continues to grow faster than inflation generally. The tax is expected to reduce health care expenditures by individuals, as it will drive employers to increase employee cost sharing as they cut the cost of coverage, and employees are likely to spend less on health care if they have to purchase it out-of-pocket rather than drawing on insurance coverage.Read the rest of this entry »