Individuals & Families Employers Brokers Physicians Health & Wellness

Excise Tax on High-Cost Coverage (Cadillac Tax)

Timeline of Provisions

Excise Tax on High-Cost Coverage (Cadillac Tax)

Summary

Beginning in 2018, a 40 percent excise tax will be imposed on the value of health insurance benefits exceeding a certain threshold. The thresholds are $10,200 for individual coverage and $27,500 for family coverage (indexed to inflation). The thresholds increase for individuals in high-risk professions and for employers that have a disproportionately older population.

Frequently Asked Questions

What is the 'Cadillac Tax' or excise tax under the health reform law?

Beginning in 2018, a 40 percent excise tax will be imposed on the value of health insurance benefits exceeding a certain threshold. The estimated thresholds are $10,200 for individual coverage and $27,500 for family coverage. The thresholds may be increased depending on actual medical inflation between 2010 and 2018 using a measure that looks to the Federal Employees Health Benefits (FEHB) program. The thresholds may also be increased for individuals in high-risk professions and pursuant to an age and gender adjustment.

We expect the IRS will provide additional guidance regarding the thresholds and the adjustments to the threshold in its regulations.

Is this tax permanent?

Yes.

Why is this tax important to sales and customers now?

Even though the Cadillac tax will not be effective for six years, some of our customers are already working with their consultants to find ways to avoid the application of the tax to their benefit programs.

This is especially true in the case of customers that are engaged in future business planning activities, including customers with collectively bargained plans where negotiations must take place before changes can be made to a plan.

Does this tax apply to all funding types?

Yes, it applies to both fully insured and self-funded employer plans.

When does the tax begin?

The Cadillac tax provision will first apply to tax years beginning after Dec. 31, 2017.

Who does the tax apply to?

The tax applies to both fully insured and self-funded plans. In the case of fully insured coverage that exceeds the applicable threshold, the issuer is responsible for paying the 40 percent excise tax.

In the case of self-funded coverage, the plan administrator (normally the employer) is responsible for paying the excise tax.

Will any groups be given a different threshold if their risk factors are higher (i.e., older populations, high-risk professions)?

Yes. The thresholds will be adjusted for individuals in high-risk professions and may also be increased pursuant to an age and gender adjustment.

We expect that additional information about the thresholds and permissible adjustments will be addressed by the IRS in its regulations.

What are the thresholds above which the individual/group would be taxed?

Under PPACA, the estimated thresholds are $10,200 for individual coverage and $27,500 for family coverage. The actual thresholds will be based on medical inflation between 2010 and 2018 using a measure that looks to the Federal Employees Health Benefits (FEHB) program.

The thresholds may also be adjusted for individuals in high-risk professions and may be increased by an age and gender adjustment.