The Cadillac Tax

Health insurance has always been a hot topic of conversation both in the political and financial worlds, and it’s easy to see why, especially in recent years. Health care costs continue to skyrocket, not just for individuals, but also for employer-sponsored health care plans. For example, 2017 has seen health care costs increase at 79% of respondents’ organizations, as well as an 11% increase in plan costs. Due to these increasing costs, employers have started to tend towards giving more compensation in the form of benefits, rather than cash. This is all good and well…until insurance contributions lose their tax-exempt status.

The Cadillac Tax, now set to take effect in 2020, is an excise tax of 40% that will be imposed on high-value benefits above certain thresholds (e.g. $10,200 for individual coverage and $27,500 for family coverage).

The soon-to-be-implemented tax is not the only health care problem employers are facing at the moment. Employers and HR reps have recently listed some potential challenges to complying with the ACA, such as the annual reporting requirements and the time investment that will be required to stay compliant under the complex new law. Furthermore, over 66% of organizations with a seasonal workforce have reported further issues with staying compliant with the ACA. These include:

  • Tracking and monitoring employee hours and status;
  • Understanding how the ACA applies to seasonal employees;
  • Inconsistent definition of a “seasonal employee”; and
  • Administering employer-sponsored plans for seasonal employees.

The key takeaway is that employees value employer provided benefits, specifically health insurance. Employers face a dilemma of controlling an employee’s total compensation while divvying up the resources to satisfy the individual desires of each employee. Doing so in the context of ERISA regulations can be daunting task but the outcomes are advantageous for the employer and employee.