What is the Cadillac tax?
The Cadillac tax is a 40 percent tax on employer-based health benefits that exceed certain levels. The tax applies to health plans as well as health savings accounts, health reimbursement arrangements and flexible spending accounts. The tax will total $47 billion from 2022-2028. It was originally slated to go into effect in 2018, but has been delayed by Congress until 2022.
Who pays it?
The Cadillac tax was intended to apply only to a small percentage of generous health plans. In reality, it will affect employer health benefits that cover tens of millions of Americans, including retirees, low and moderate income families, public sector employees (including firefighters, police officers and federal employees) and small businesses. Twenty-six percent of workers will feel the impacts of the Cadillac tax in 2024 – rising to 40 percent in 2028 – according to Blue Cross Blue Shield Association projections.
Employers cannot control key factors that could trigger the tax, such as having employees with greater healthcare needs, workforces with higher numbers of older workers and being located in a region with high healthcare costs. The Cadillac tax will unfairly penalize employers with these characteristics.
How will the tax affect healthcare costs?
If implemented, the Cadillac tax will likely cause employers to shift additional costs to employees and their families. As a result of the tax, tens of millions of working Americans will see reduced health benefits and increased out-of-pocket expenses, without any guarantee that overall healthcare costs are reduced.
Additionally, the tax applies to on-site medical clinics, certain wellness and employee assistance plans and other pre-tax health benefits that can help rein in costs. This will cause health plans to hit the tax threshold earlier than expected and force employers to reconsider offering these services.
Learn more about the Cadillac tax here.