60% of Employers Will Likely Trigger the Cadillac Tax—Most Will Face the Tax in 2018

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A new survey from the International Foundation of Employee Benefit Plans examines the impact of the Affordable Care Act’s Cadillac tax on employers.

Employers are already taking action because making the changes needed to avoid the tax can be time-consuming and challenging—and they may have big implications for their workers.

Survey Finds Employers Are Shifting Costs and Changing Plan Designs to Avoid the Tax

With the Cadillac tax on the horizon, employers nationwide are taking steps to determine whether they will trigger the tax and then, most commonly, taking actions to avoid the tax.

A new survey from the International Foundation of Employee Benefit Plans finds that nearly nine in ten employers have calculated whether their health plan will trigger the Cadillac tax, and 60% say that without any future changes, their plan will face the tax.

Introduced by the Affordable Care Act (ACA), the so-called Cadillac tax is a 40% excise tax on employers that offer high-cost health plans to their employees. Although it doesn’t take effect until 2018, employers are already analyzing what this ACA provision will mean for their health plans and are making changes to lessen the impact.

Of those that are on track to trigger the tax, 62% say they will likely face the tax right away in 2018. An additional 10% say they will hit the tax in 2019, 12% in 2020, and 11% in 2021 or later.

“According to the ACA provision, the Cadillac tax thresholds will be indexed annually. The annual adjustments, however, will not be based on health care cost inflation but instead on the Consumer Price Index, which is considerably lower,” explained Julie Stich, CEBS, director of research at the International Foundation. “While we expected the number of plans subject to the tax would increase after 2018 because of this, we weren’t sure how many plans would trigger the tax during the very first year.”

The vast majority of plans that would be subject to the Cadillac tax are implementing changes to avoid it—Only 5% of surveyed employers that are on target to hit the tax threshold report they plan to pay the tax. Forty percent are currently working on plan changes, and another 40% plan to take future action to avoid the tax.

Among employers that have made changes or are considering changes, the most common actions to avoid the Cadillac tax are:

•Shifting costs to employees (46%)
•Moving to a high-deductible plan (39%)
•Reducing benefits (33%)
•Dropping higher cost plan options (31%)
•Adopting wellness and preventive care initiatives (26%).

“Employers are already taking action because making the changes needed to avoid the tax can be time-consuming and challenging—and they may have big implications for their workers,” Stich said. “With only 5% of employers reporting that they plan to pay the Cadillac tax, many Americans can expect to see changes to their employer-sponsored health plan.”

A number of employers have already made modifications to their plans so they will not face the tax. Nearly one-third of employers (32%) that have done calculations and are no longer on track to trigger the tax report they have already implemented plan changes to avoid it.

The survey also asked employers about their ACA reporting progress and found that most employers had a strong understanding of the requirements and were taking action to meet the upcoming deadlines. Only 8% plan to file for extensions.

ACA Cadillac Tax and Reporting: 2015 Survey Results was conducted in September 2015. Responses were received from 422 human resources and benefits professionals in the databases of the International Foundation of Employee Benefit Plans and the International Society of Certified Employee Benefit Specialists (ISCEBS). The organizations represent a wide base of employers from nearly 20 industries and ranging in size from fewer than 50 employees to more than 10,000—with most responding employers (48%) falling in the range of 500 to 4,999 employees.

View the full survey findings at http://www.ifebp.org/CadillacTax.

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The International Foundation of Employee Benefit Plans is the premier educational organization dedicated to providing the diverse employee benefits community with objective, solution-oriented education, research and information to ensure the health and financial security of plan beneficiaries worldwide. The Foundation has more than 33,000 multiemployer, corporate and public sector members representing over 25 million lives. For additional information, visit http://www.ifebp.org.

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