3 possible outcomes for the Cadillac tax and how to prepare for them

There are three options of what might happen to the Affordable Care Act's "Cadillac tax" before it begins to take effect in 2018. No matter which one prevails, there are steps to take now in preparation.

The 40% nondeductible excise tax on employer-sponsored “high cost health coverage” is technically assessed to insurers and plan administrators, but they will pass in onto the consumer, said Roger Abramson, general counsel at Ameriflex, a third-party benefits administrator.

According to the American Health Policy Institute, large employers will pay on average $1 million in taxes in 2018. At that time, the think tank estimates the tax will hit 17% of all businesses and 38% of large employers.

Three paths

Abramson said Wednesday at an industry conference the possible paths for the tax are: nothing changes, it will be modified, or it will be repealed.

Also see: "Politicians agree on Cadillac tax repeal."

The reason nothing may change is “three years is an eternity to most … taxpayers,” he said.

But, if the tax were to be modified, one possible option is to raise the limits that would cause the tax to kick in. That would take into effect the idea that health plans are costlier in one state over another. Another modifying option is to lower the percentage, Abramson said. Lawmakers might also consider a delay. “They delayed everything else about the ACA, why not delay this, too?” Abramson quipped.

The final option is repeal, which could lead to two possible outcomes: The tax would be gone for good or come back in another form.

Abramson pointed out, of all tax loopholes in the United States, work-based health plans rank highest as “costing” the government $760.4 billion a year. “You never want to be the No. 1 thing on this list because you are a big target,” he said. 

He suggested the change might be part of a major tax reform package, which takes place every few decades. The last one was in 1986.”There is a lot of support on both of sides of the aisle to work on this,” he said.

Action plans

Abramson said now is the time to deal with this. Brokers need to look at clients and determine who might be subjected to the tax. He also encouraged brokers to engage with the government. “So few people really engage their Congress people,” he said. “Talking about policy, as opposed to calling up and being mad about something.”

Also see: "Cadillac tax remains top-priority concern for employers."

Government agencies are another avenue to contact. As “quasi-legislative” bodies, “agencies get a bad rap. But they didn’t pass the Affordable Care Act,” he said.”They are very responsive to comments about effects. They can’t just make rules, but have to get public comment under law. They have to answer all the comments.”

Despite the advice, Abramson said he does not have any good answers. “I’m supposed to give you great answers and I don’t have any,” he said. “I know people are struggling with it.”

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