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Health Law Tax Could Hit One in Four Employers in 2018, Study Shows

By CQ HealthBeat Staff, CQ Roll Call

August 25, 2015 -- One of four employers offering health benefits could be subject to the Affordable Care Act's tax on high-cost plans, with the share of those potentially affected growing to 42 percent by 2028, unless the companies revise their benefits, according to new projections from the Kaiser Family Foundation.

The so-called Cadillac Tax is set to take effect in 2018 and funds coverage expansions under the law. It taxes plans at 40 percent of each worker's health benefits exceeding certain coverage thresholds—$10,200 for self-only coverage and $27,500 for family coverage in the first year.

Using data from an employer health benefits survey, Kaiser projected 26 percent of companies offering benefits could be hit by the tax in 2018 unless the increase deductibles, eliminate some covered services, narrow provider networks or make other adjustments. For the most part, such changes would result in workers paying a greater share of their health care costs out of pocket.

"The amount and structure of the [tax] provide a strong incentive for employers to avoid hitting the thresholds," Kaiser stated, noting the health law doesn't allow employers to deduct the tax as a cost of doing business. And because the tax is directly levied on health insurers and providers, not employers, the pass-through to firms and their workers may not be straightforward, with retroactive billings and other ripple effects, a memo accompanying the projections stated.

Kaiser projects the percentage of employers with at least one health plan that would exceed the tax threshold will rise to 30 percent in 2023 and 42 percent in 2028, absent any changes in plan design.

The Cadillac Tax was designed to discourage employers from offering overly generous health coverage and driving up medical spending. However, while it's portrayed as a tax on generous plans, it's calculated with respect to each covered employee based on a combination of benefits received and can vary by worker at the same company, Kaiser noted.

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