While 2018 might still seem far off in the future, the realities of the impact of the 40-percent excise tax in the Patient Protection and Affordable Care Act are already being felt today. The excise tax, or Cadillac tax as it is more commonly known, is set to impact 48 percent of employers in 2018 and could potentially reach 82 percent by 2023, according to a September 2014 Towers Watson study.
The tax was originally characterized as impacting those "gold-plated" insurance plans that offered the richest benefits — a select group of high-end plans. Today we see that the impact of the tax is far more reaching and will undermine the ability for employers to even offer insurance and for individuals to save for their own health care expenses.
As the law stands, contributions from employers and employees to benefits accounts such as health savings accounts (HSAs) and flexible spending accounts (FSAs) are included in the threshold limit. At the same time, high-deductible health plans continue to grow in popularity as a cost-effective option that are expected to remain well under the Cadillac tax limits for the near future.
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While the growth in adoption of high-deductible health plans is making health care more affordable for many, these plans are best partnered with benefit accounts that allow the employee and employer to contribute pre-tax dollars to prepare for the higher deductible and other out-of-pocket costs that are more common with these plans.
For example, many are now utilizing HSAs in conjunction with their high-deductible health plans. According to a midyear 2014 report from Devenir, HSAs have grown to an estimated $22.8 billion in deposits and assets and 11.8 million accounts as of June 30, 2014.
Those involved in insurance and benefit plan design are already working to address the anticipated impact of the tax. Employers are considering reducing or eliminating their pre-tax contributions in order to avoid reaching the threshold. This action could devastate the use of HSAs and the ability of employers and employees to realize all their benefits including wellness program incentives, better managing current health care costs and saving for future health care expenses.
While there has been some recent interest from Congress, they need to act now to ensure that benefit accounts are excluded from the threshold limits and that this tax doesn't undermine the ability for employers to offer quality health care and employees to be able to save for their own health care expenses.
The Treasury Department and the IRS may be a part of the solution as well. While they may not have the authority to provide regulations to exempt these consumer-directed health arrangements from the tax, they do have the authority (and have in the past) to delay enforcement of the tax through extended transition relief.
Timing is critical as plan design decisions are often made years in advance for the largest employers in our country. The Cadillac tax undermines the future of HSAs and other benefit accounts, and ultimately hurts those Americans who want and need to save for their health care expenses.
With the Supreme Court ruling eliminating the uncertainty of PPACA, it is now time to deal with this matter rather than ignore the harm this provision will cause for employers and employees alike.
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