ACA Compliance and the Cadillac Tax
While the year 2018 may still seem a ways off, many employers are now looking to this year in anticipation. This is the year when the Cadillac tax goes into effect. This tax is one of the more controversial portions of the Healthcare Reform Act, which was enacted by President Obama, and many employers are now looking for ways to prepare for the Cadillac tax.
What is the Cadillac Tax?
The Cadillac tax is an excise tax that is placed upon businesses that offer certain insurance plans for their employees. If the plan that is offered costs more than $10,200 per individuals or $27,500 per family, the business will pay a 40% excise tax on the amounts over those thresholds.
The reason behind this tax is to help cut down on healthcare spending. Employees are more willing to spend unnecessary money going to the doctor and with medical procedures when they can’t see the true costs of these items. With this tax, the goal is to place more of the financial burden on employees so that healthcare spending is kept to a minimum.
A second goal of the Cadillac Tax is to cause employers to change how they seek and retain the best employees. Now, instead of focusing on the benefits that are offered, employers will be forced to offer higher wages. In turn, the government hopes that this will create more funds for federal spending.
How to Prepare for the Tax
In order to be adequately prepared for the tax to go into effect, employers must begin looking for ways to prepare for it now. There are many options available that employers can rely on. By determining the best option for the business and preparing for the changes now, businesses will be able to cut down on the amount of tax that will be paid. Here are some of the most popular options.
Leave it alone. One option that employers have is to leave their plans rich. This will mean that they will pay for quality specialists with a PPO. Unfortunately, this is one of the best ways to fall victim to the Cadillac tax. The best option is to look for ways to cut down spending and the overall cost of medical care. This could mean finding plans that offer higher deductibles and sharing more of the cost with employees.
Encourage HSA use. An HSA can be very beneficial to both employees and employers. It will allow employees to have more control over how much they spend for medical care. An HSA also gives the employee more responsibility. To help encourage use of this type of account, some employers have chosen to offer the benefit of adding money to their employees’ Health Savings Accounts.
Use the Exchange. Another option that employers are now choosing involves the health care exchanges. Some employers are opting to give their employees a certain amount of money, which is then used to shop for policies through the exchange. With this option, it is best to bring in a new benefit that can complement this new benefit and that will still allow employees the help that they need to receive adequate medical care.
Replacing the Benefit
One of the main downsides of the Cadillac Tax is that employers can no longer use a high-end health insurance plan as a benefit to attract employees to their company. Because of this, a replacement is needed. To help with this situation, many employers are beginning to offer other financial incentives. For example, offering aid for employees looking to live a healthier lifestyle can be very attractive to a potential employee. Programs for smoking cessation and weight management can also be mutually beneficial to employers and employees.
Planning for the Cadillac tax today is the best way for businesses to reduce the amount of tax that they will be forced to pay in 2018. While it may seem challenging, there are many ways that this preparation can take place. Contact us to learn more about how your business can plan for 2018 and prepare for the effects of the Cadillac tax.