Nearly Half of Employers Will Hit the Cadillac Tax in 2018


Despite efforts to rein in health care costs, roughly half of large U.S. employers will face the excise tax in 2018; and the percentage is expected to rise significantly in subsequent years, according to an analysis by Towers Watson. The Congressional Budget Office  expects a $79 billion excise tax burden from 2018 to 2023.

As part of the Affordable Care Act (ACA), the excise or Cadillac tax is a 40% tax on the value of all affected health care programs a participant elects that exceed certain dollar thresholds in 2018 and beyond. This non-deductible excise tax must be paid by the employer although some employers are considering shifting the costs to plan participants. Seventy-three percent of employers are concerned about triggering the tax, and 62% say it will have at least a moderate effect on their health care strategy in 2015 and 2016. The survey revealed that 48% are likely to trigger the tax in 2018; and 82% could cross the threshold by 2023.

Trevis Parson, chief health actuary for Towers Watson said, “Even with conservative projections, the impact of the excise tax on employers is substantial, yet it is often not fully understood. Each company will need to look at the tax carefully based on its own programs, and we expect a great deal of variation by industry.”

Randall Abbott, a senior health strategist at Towers Watson said, “Even a Chevy may be affected by the Cadillac Tax. For most employers, the excise tax will be a question of when, not if, unless action is taken. The ACA has put a timer on cost management for many employers and unless one cuts benefits or improves program performance there’s a real risk of triggering it.” Abbott says that these three key factors are not well known about the tax:
1. The excise tax is based on employer and employee premium contributions, not just what the employer pays for coverage.
2. The definition of what’s included for calculating the tax extends to tax-advantaged health care accounts, such as health flexible spending accounts, health reimbursement accounts, and pretax contributions to a health savings account.
3. The tax is not determined by the value of the medical plan, but rather the value of all affected health benefits elected by an employee or family. The tax is based on the aggregate value of the programs an employee elects, not just the medical plan value itself.

Annual increases in excise tax thresholds are not based on health care cost inflation, but on the Consumer Price Index, which was 1.5% for 2013. That is far less than medical cost trend and considerably less than the 4% annual health care cost increases that better performing employer health plans are expected to achieve after plan changes in 2015 .

Abbott said, “With so much at stake, it is critical that companies take a close…look at their health programs and understand their projected costs…It also highlights the need for companies to improve their health program performance…The good news is that many have already taken steps, and with proper plan management, the impact of the tax can be significantly mitigated. In fact, Towers Watson estimates that the number of companies expected to trigger the tax would be considerably higher if not for the variety of actions that employers have already taken or are likely to take as they better understand the challenge. “For more information, visit

Health Care Reform Is Triggering Benefit Changes

With Affordable Care Act deadlines imminent in 2014 and 2015, employers are saying the increased effect of health care reform on various aspects of employee benefits, according to a Prudential survey. Vishal Jain of Prudential said, “The Affordable Care Act could…usher in a new …emphasis on voluntary benefits. More employers are utilizing them for recruiting and retaining talent and employees increasingly view them as a cost-effective way to protect their family’s financial future.” With a shifting benefit landscape, carriers are now focused on being a trusted resource for employers while offering a full spectrum of services such as enrollment communications, benefit education, record keeping, and administrative services,” Jain said.

The survey reveals the following about employers:
• 49% say they are extremely or very likely to make a high-deductible health plan their only health insurance option.
• 73% say the law is having an effect on benefit service and support and 69% say there is an effect on benefit communications.

The survey reveals the following about employees:
• They are increasingly confident that more Americans will be covered under the Affordable Care Act (43%, up 7% from 2012).
• An expanding number say fewer employers will offer health insurance (44%, a 13% increase from 2012), and 38% of those employees believe their employer will drop coverage.
• About one-third have heard of but know little about public or private exchanges.

For more information, visit

Last Updated 05/25/2022

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