A few years ago, most of the insurance industry news articles I read covered topics like managing health care costs, educating and engaging members, and the latest and greatest snazzy online tool and mobile app for insurance companies and health care providers. My, how things have changed. It seems that each week, I see a new health care reform issue that’s highlighted and dissected in the news.

Recently, I’ve seen articles popping up on the technology side of exchanges: access, security and site performance issues…but there’s one topic I’ve read and heard a lot about that seems to be creating more questions than answers: the Cadillac Tax. Does this tax impact ancillary benefits like dental and vision insurance? Is The Cadillac tax only applied to plans on exchanges? To answer these questions, let’s begin, well, at the beginning and work our way to the here and now.

Just like its namesake, this tax will apply to premier plans. The Cadillac Tax under the Affordable Care Act (ACA) is an excise tax applied to medical insurance plans with a high price tag. Sure, these Cadillac plans come with a higher premium but typically cover the most expensive treatments with little or no out-of-pocket charges to the member. Under the ACA, companies who offer their employees rich, robust health plans will feel the ‘pedal to the metal’ of the Cadillac Tax.

WHY IMPOSE A CADILLAC TAX?

The Cadillac Tax is a 40 percent excise tax on the employer-sponsored health insurance premium prices above a certain threshold. Just like all taxes, The Cadillac Tax serves as an additional area of revenue generation for the government. It also was developed as a means to curtail the purchase of these plans in favor of lower premium and higher cost-sharing plans, thereby lowering the cost of insurance and stemming overutilization.

The intent behind this was to educate employers and employees about health care costs. This heightened awareness would help drive down the cost of health care (for example: if an insured member were made to pay more money out-of-pocket for health care services as opposed to having a rich plan, they would be more cost-conscious). This overall effect would ultimately drive lower costs for everyone.

WHEN DOES THE CADILLAC TAX TAKE EFFECT?

You’ve got a while before you see this implemented in 2018, but it should remain on your radar. As the trusted benefits adviser for your clients, you’ll want to educate them about this tax and how to contain costs. Employers will need to adjust their benefit offerings to avoid the tax. Be sure to advise them to keep this in consideration when shopping for products on a private marketplace or public exchanges as well.

HOW DOES THE CADILLAC TAX WORK AND WHO IS IMPACTED?

Beginning in 2018, the Cadillac Tax will impact both fully-insured and self-funded plans. If the product is fully-insured, the insurer pays the tax. If the plan is self-funded, it obligates employer groups and employee benefit administrators to pay a tax. This tax is imposed on any health plan with an annual limit that is higher than $10,200 for individual coverage and $27,500 for family coverage (indexed to inflation). For example, if individual coverage costs $15,000 annually, the 40 percent Cadillac Tax is charged on the difference between the $10,200 and $15,000, which is $4,800. Employers who have high risk positions (such as police officers, etc), as well as retirees, may be moved into a slightly higher threshold (estimated by ACA to be $11,850 for individual coverage and $30,950 for family coverage).

You might be wondering: if the carrier has to pay, why should my client be concerned? As costs shift to the insurer, premiums can rise.

HOW ARE DENTAL AND OTHER ANCILLARY INSURANCE BENEFITS AFFECTED BY THE CADILLAC TAX?

Here’s some good news: standalone dental plans, like Solstice’s EssentialSmiles plans, won’t be subject to this tax. Purchasing a standalone dental plan for employees can be part of an employer’s strategy to offset costs and reduce the taxable amount impacted by the Cadillac tax. Vision insurance plans are also not subject to this tax. Depending on the circumstances, employer groups who currently bundle these products with medical may want to consider stepping away from bundling as it will drive the plan cost higher, which may then trigger the Cadillac Tax.

As a benefits broker, you can strategically advise your clients to shop around for standalone dental and vision products as a way to reduce, or even avoid, the Cadillac Tax.

There’s more to know about the Cadillac Tax if your clients offer these high-premium plans to their employees, but these are the key takeaways to get you jump started. If you want to know the real nitty gritty, Kaiser Health has a great resource for you.

The information in this blog is based on Solstice's review of the publicly available materials and is not intended to provide legal advice. While we make every effort to present and update accurate information, interpretations can vary. The overviews provided here are intended as an educational tool only and should not be relied upon as legal or compliance advice. For legal advice, please contact your attorney.

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