The goals of the Affordable Care Act, as we all know, are to give more Americans access to affordable health care and to reduce the trend of increased spending on health care in the United States.
Employers hope to reduce the cost of care by engaging their employees in the process. Many are providing deductible plans that give access to EOBs (explanation of benefits) that outline the cost of care, the negotiated rates the carriers have with providers and the ultimate cost of the care the employee is receiving. This is a sea change for many Americans who have only known the HMO design and gives a peak behind the curtain.
Since qualified plans typically have a $1,500 to $3,000 deductible, many employers are providing a Health Savings Account and funding some of the cost. All this makes sense, offer a deductible plan which allows for more consumerism and provide an HSA to ease employees into the change.
This tax is designed to assess a 40% surcharge to employers that provide high cost health benefits to their employees. High cost in one region of the country is basic benefits in another. New York, San Francisco and Boston are three areas that come to mind where an employer doing the right thing will more likely be burdened with the Cadillac Tax and to avoid the tax they may be forced to reduce the quality of benefits they are offering to their employees. An illustration of the tax calculation is provided below.
| Example of the unintended consequence of the Cadillac Tax in high cost regions of the USA | ||
| Health | ||
| Monthly Plan Cost for $3,000 Deductible PPO Plan (Family) | 1,850.00 | |
| Yearly Plan Cost for the $3,000 Deductible PPO Plan (Family) | 22,200.00 | |
| Dental | ||
| Monthly Plan Cost for Dental (Family) | 150.00 | |
| Yearly Plan Cost For Dental (Family) | 1,800.00 | |
| Vision | ||
| Monthly Plan Vision (Family) | 18.00 | |
| Yearly Plan Cost Vision (Family) | 216.00 | |
| Health Savings Account | ||
| Employer H.S.A. Contribution Quarterly | 375.00 | |
| Employer H.S.A. Contribution Yearly | 1,500.00 | |
| Yearly Employee H.S.A. Contributions Family Coverage 5,150.00 | ||
| Calculated Total Plan Cost | 30,866.00 | |
| Threshold before the Cadillac Tax is due | (27,500.00) | |
| Basis on which tax is calculated | 3,366.00 | |
| Tax per employee | 1,346.40 | |
| Tax on company providing benefits to 25 employees | 33,660.00 | |
The government expects to generate $80 billion dollars over the next ten years to finance the cost of the ACA with the Cadillac Tax. In theory, it made sense but when you actually work through the numbers in a practical example, this tax as it stands right now, will penalize employers in certain parts of the country for doing the right thing.
For more information on the Cadillac Tax, please reach out to Genesis HR Solutions at AskUs@genesishrsolutions.com or 800-367-8367.
Genesis HR Solutions is the premier PEO provider for Massachusetts based businesses.
