Company sponsored healthcare is costing the federal government an estimated $250 billion per year in tax subsidies from premiums alone, and the Affordable Care Act is out to change that in a big way.
By imposing a so-called “Cadillac Tax” on high value health insurance plans, beginning in 2018, the Affordable Care Act expects to bring in approximately $87 billion over the next ten years.
Any plan that costs more than $10,200 for single coverage or $27,500 for family coverage will be subject to a 40% tax on any value above the set threshold, which will be adjusted annually for inflation. The Obama Administration claims that this tax is only meant to affect those with platinum-level healthcare, however there is some economic trickery at play here: Medical care prices have historically risen significantly faster than all other prices, so by linking the inflation adjustments of the Cadillac Tax threshold to the Consumer Price Index (CPI), the administration has ensured that the threshold will increase at a much slower rate than the cost of healthcare.
Over time, employers will be unable to continue to provide a standard level of care that is below the Cadillac tax threshold, which will eventually hang average plans over the edge. According to the American Health Policy Institute, the cost of the average family health care plan is expected to hit the Cadillac tax threshold by 2031.
While there is still a lot to be figured out in terms of the implementation of the tax, we do know a few things for sure: The cost of healthcare will continue to rise, the pressure on benefit spending will continue to increase, and companies need to be prepared.