The Affordable Care Act's proposed Cadillac Tax has become the stuff of legends in causing hand-wringing in the halls of America's businesses -- and it hasn't even happened yet.
But let's clear up some of the myths about the tax to at least bring it out of the shadow of nightmares into the light of day.
Myth #1: Employers should make benefit changes now to avoid the Cadillac Tax.
Fact: The Cadillac Tax has been delayed until 2020.
As we've seen so far with the ACA, a lot can happen in four years. So far, living in the days of Health Care Reform is like living in a new Wild West. Who knows what is going to happen, but it may be smart to wait and see -- at least until we're within striking distance, before you upend your current benefits program. There are also so many other factors happening that could influence outcomes: an election, consumer-driven health care initiatives besides the ACA, health care industry innovations by the truckload, morphed insurers, and more. All of the stakeholders in health care are standing back and taking a fresh look. Yes, it's hard to ride the wave -- but it's exciting at the same time. Who knows how this will all end up, but a business making major changes, anticipating a seismic change that's (at least) four years away may not make sense.
Myth: All voluntary benefits are included in the Cadillac Tax calculation.
Fact: Generally, voluntary benefits are NOT counted in the calculation.
Specific disease and hospital indemnity are the only two that MAY be included -- but that's ONLY if they are paid for with pre-tax dollars through something like a cafeteria plan or with excluded employer contributions. Voluntary are HIPPA excepted benefits.
Myth: Employers should switch their pretax voluntary insurance products to after-tax versions.
Fact: Only employers with benefits plans considered “high cost” need to consider after-tax strategies.
Again, since only specified disease and hospital indemnity paid for with pre-tax or employer dollars are subject to the Cadillac Tax, losing employer and employee tax advantages for ALL pre-tax voluntary products, or discontinuing these products all together, doesn't make sense. That's throwing the baby out with the bath water. And if specified disease and hospital indemnity benefits are NOT paid for with pre-tax or employer dollars, they are unaffected as well. With the move to consumer-driven health care and high deductible plans, "voluntary" is no longer voluntary, but a necessity for your employees to fill the gap. Your employees haven't yet figured out how to cover that high deductible, so this gap insurance is no longer something nice to have, it's a must.
Myth: Employers or employees will be responsible for paying the Cadillac Tax when it goes into effect.
Fact: In most cases, the insurance provider will be responsible for paying the tax.
Fully insured small businesses, and most are, will not pay the Cadillac Tax. Their insurance provider, who sets the premium and pays the claims, will be responsible for paying the tax when (or if) it goes into effect in 2020. If the employer is self-insured, setting the premiums and paying the claims, or the coverage offered is a health savings account (HSA) or an Archer medical savings account (MSA), then, yes, in this case the employer or plan administrator will be responsible for paying the tax.
Take a breath -- and exhale. Pay attention to what's going on, but wait and watch. Make sure your employees have access to gap insurance to help them cover their high deductible, as well as education and someone with the expertise to help them make tailored decisions, as you turn over the reins.
Let us know how we can help.
The Cadillac tax: myths & facts
Apr 20, 2016 | By Brad Knox
Retrieved 4/29/16 from: http://www.benefitspro.com/2016/04/20/the-cadillac-tax-myths-facts?t=core-group&page=2&slreturn=1461953806
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