Benemax

In a recent analysis of the new Health Care Reform law, Tower Watson conclued that by 2018, 60% of all employers will be force to pay the so-called “Cadillac Tax”.

This excise tax levies a 40% nondeductible tax on the annual value of health plan costs for employees that exceed $10,200 for single coverage or $27,500 for family coverage. The tax kicks in in 2018.

Towers Watson data reveal that the average 2010 cost of medical coverage for active single and family plans is $5,184 and $14,988, respectively. When these figures are projected out to 2018 using a reasonable estimate of future health care inflation (under 9%), the excise tax is triggered.

Example: a plan with a 2018 single coverage cost of $11,200 and family coverage cost of $32,400 would exceed the limit by $1,000/single, $4,900/family. The tax assessed would be $400/single, $1,960/family. An employer with 50 singles and 50 families would pay a tax of $118,000. An employer with 500 singles and 500 families would be hit with a $1,180,000 tax bill. 

Note: In the case of fully insured plans, the tax is actually paid by the insurance carrieer, not the employer, but of course, that cost would be passed through to the employer in the form of even higher premiums. 

Of course, as always, this bill will ultimately be paid by consumers and employees in the form of higher higher prices, higher health benefit contributions, higher out-of-pocket health care costs (due to benefit reductions), and/or lower wages (due to increased employer cost).