Employers offering high-priced benefit plans to their workers may soon find themselves on a bumpy ride, thanks to the “Cadillac” tax.
According to the Medical Plan Trends Report, produced by benefit-management firm HighRoads and the member-advisory people at CEB, about 16 percent of plans are on track to incur the tax, charged on plans with annual premiums exceeding $10,200 for individuals or $27,500 for a family.
The 40 percent non-deductible tax takes effect in 2018 and is designed to discourage plans from including design features that promote over- or unnecessary use of medical care, such as low or non-existent deductibles and co-pays.
However, one-fifth of plans still have no deductibles, and roughly 55 percent of plans charge relatively low primary care physician visit co-pays of $20 or less, the report said.
The authors of the report suggested organizations could redesign their plans to lessen or even avoid the tax without damaging employee-perceived value.
For example, increasing prescription drug costs has a relatively limited impact on how employees view the value of their plans, the report said. At the same time, companies taking such steps could boost vacation time, something that most employees would welcome and which would do nothing to trigger the so-called Cadillac tax.
The 40 percent tax would be paid on the amount by which the premiums for employer-sponsored health coverage exceed specified thresholds. That would be $24,000 a year for a family. So, for example, the tax on a $26,000 plan would be $800, or 40 percent of $2,000. Insurance companies would pay the tax but would almost certainly pass it along to the employer and its employees.
In other findings, the Medical Plan Trends Report also said that, in 2012, 58 percent of U.S. employers that offered health care coverage had at least one plan that was grandfathered – or exempt from specific health care reform requirements such as fully covered preventative care. In contrast, a review of 2013 plans revealed that, on average, less than 20 percent were grandfathered.
The Patient Protection and Affordable Care Act requires non-grandfathered plans to provide coverage without a co-payment for services such as Pap smears, routine mammograms and colorectal cancer screenings under generally accepted medical guidelines.