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Many Firms to Be Hit by Cadillac Health Plan Tax, Report Says

May 19, 2010
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Related Topics: Finance/Taxes, Benefit Design and Communication, Workforce Planning, Latest News
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Under a provision tucked into the new health care reform law, a 40 percent excise tax will be imposed starting in 2018 on premiums exceeding $10,200 for single coverage and $27,500 for family coverage. The tax on the so-called Cadillac health care plans will be paid by insurers and third-party claims administrators, but they are expected to pass that added cost on to employers.

Benefit consultant Towers Watson & Co. of New York estimates that in 2010 the average cost for single coverage will be $5,184 and family coverage will cost $14,988. If costs increase at an 8 percent annual clip, more than 60 percent of the employer plans Towers Watson analyzed would be hit by the tax in 2018, the consultant estimates.

“All it takes to drive costs above the excise tax cap for six in 10 employers is an 8 percent average annual cost increase.

And without making plan design changes, that’s what many employers are projecting,” Dave Osterndorf, Towers Watson chief health actuary in Milwaukee, said in a statement. “This rate of increase has been typical for the past several years.”

On the other hand, if employers hold down cost increases to 6 percent, many will not be hit by the excise tax until 2023. “These top performers may avoid hitting the excise threshold until 2023 or beyond due to their focus on workforce improvement, wellness, chronic condition management and communicating the prudent use of health care goods and services,” Osterndorf said.

Still, there is good news, said Randy Abbott, a senior Towers Watson consultant in Wellesley Hills, Massachusetts.

“Employers have a long runway to plan for 2018, so there is time to approach the issue strategically and thoughtfully,” he said.

The analysis is based on health care plans sponsored by 552 employers, mainly Fortune 1,000 companies. 

Filed by Jerry Geisel of Business Insurance, a sister publication of Workforce Management. To comment, e-mail editors@workforce.com.

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