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Analysis

ACA's 'Cadillac Tax' Could Hit 20% of Employer-sponsored Health Plans

By John Commins  
   July 15, 2019

The levy caps the amount of untaxed health benefits employers can provide to their workers with the goal of slowing healthcare spending.  

One-in-five employer-sponsored high-cost health plans could be slapped with the Affordable Care Act's "Cadillac Tax" when it takes effect in 2022, according to a new analysis.

The Kaiser Family Foundation study found an even larger share – 31% of health plans – could be affected when workers’ contributions to flexible spending accounts are accounted for.

The Cadillac Tax was supposed to take effect in 2018, but Congress delayed the measure until 2022. Lawmakers are considering a bill that would repeal the tax, which caps the amount of untaxed health benefits employers can provide to their workers with the goal of slowing healthcare spending.  

About 156 million people get their health insurance coverage through an employer, making it the largest source of coverage in the United States.

The tax slaps a 40% levy of workers' health benefits above a threshold, adjusted annually for inflation. In 2022, the thresholds are estimated to reach $11,200 for single coverage and $30,100 for family coverage, KFF said.

The KFF analysis uses its own 2018 Employer Health Benefits Survey to estimate the share of employers with at least one health plan that would exceed the cap, with and without FSA contributions, because workers could simply stop using those account to avoid the tax, KFF said.

The tax would affect more employers over time, reaching 37% in 2030 without including FSA contributions, and 46% with them, KFF said.

KFF said it did not attempt to estimate how many employers or employees would pay the tax, only the current plans that would be surpass the thresholds if nothing else changed.

"It is likely many such employers would modify their plans to avoid the tax – for example, offering lower-cost plans, raising deductibles or otherwise shifting costs to workers to avoid the threshold," KFF said.

John Commins is a content specialist and online news editor for HealthLeaders, a Simplify Compliance brand.


KEY TAKEAWAYS

The tax slaps a 40% levy of workers' health benefits above a threshold, adjusted annually for inflation.

In 2022, when the tax is set to take effect, the thresholds are estimated to reach $11,200 for single coverage and $30,100 for family coverage.


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