One of the more unresolved aspects of the Affordable Care Act (ACA) is the Cadillac Tax, which is set to go into effect in 2018. Very little in the way of concrete guidance has been disseminated by the IRS and the Treasury Department. What we know at this point is that there will be an excise tax on “high cost” medical plans. According to Spring’s research, while the Cadillac Tax will likely not be a large burden right away, the projected Cadillac Tax will increase considerably in the future for many organizations.

The total cost of medical plans for the purpose of Cadillac Tax calculations will be similar to COBRA rates. The excise tax will be 40% of the medical plan costs that exceed the Cadillac Tax threshold. While the final thresholds have not yet been released, we know that they will be adjusted for group demographics such as age and gender. As of today, there have been no indications of how the thresholds will be adjusted for demographics.

Beyond 2018, the Cadillac Tax threshold is projected to increase each year with CPI. Therein lies a major problem as medical plans have had cost increases that far exceed CPI. Because medical plan costs will increase faster than the Cadillac Tax thresholds, we project that Cadillac Tax payments will increase considerably if no plan changes are made.

We are very short on guidance related to the Cadillac Tax and final regulations could be very different than what is currently expected. However, for most organizations, it’s clear that they will need to make significant changes to their medical plans over time to reduce the Cadillac Tax burden. These changes could include higher deductibles, co-pays, or out-of-pocket maximums.

Want to get an estimate of how much the Cadillac Tax may impact your business? Try out our new calculator tool and find out!

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Steven Keshner

Steven Keshner

Partner and Chief Actuary at Spring Consulting Group, LLC
Steven Keshner, FSA, MAAA is a Partner and Chief Actuary for Spring Consulting Group. Steven has over 25 years of actuarial, financial, underwriting and strategic insurance experience with a group, life, health and retirement focus. Steven’s experience allows him to be qualified as an Appointed Actuary enabling him to sign off on employer, insurer and captive insurer reserves as well as actuarial feasibility studies and other actuarial certifications. Steven has worked with clients to develop DOL and product initiatives focused on improving rate competitiveness through medical plan designs, product language, consumer driven health plans, and value added benefits such as low cost, minimally underwritten LTD plans. Steven’s ability to gain cost efficiencies led him to design a new underwriting and pricing model for life and disability captive programs. Prior to joining Spring, Steven was CFO and Chief Actuary of Nippon Life Benefits, a subsidiary of Nippon Life Insurance Company, a global mutual life insurer.
Steven Keshner

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