Cadillac plan tax to hit most employers by 2018

By the time it officially takes effect in 2018, the excise tax on so-called “Cadillac plans” will affect more than 60 percent of large employers’ active health plans, according to a Towers Watson analysis. Based on data from the firm's 2010 Health Care Cost Survey, the study also found that, by taking certain actions, employers can contain their costs and significantly delay hitting the excise tax cost ceiling for a number of years.

"The original concept of the excise tax was to penalize employers with excessively rich health benefit plans," says Randall Abbott, a senior consultant for Towers Watson. "Assuming even reasonable annual plan cost increases to project 2018 costs, many of today's average plans will easily exceed the cost ceiling primarily directed at today's 'gold-plated' plans."

"There is some good news: Employers have a long runway to plan for 2018, so there is time to approach the issue strategically and thoughtfully. But reform and the excise tax may have unintended consequences," Abbott suggests. "As employers strive to preserve the affordability of core health coverage, there will be difficult decisions to change or eliminate ancillary benefits like dental coverage and health flexible spending accounts, which are included in the excise tax definition." Excise tax rules will also be needed to clarify certain confusing aspects of the law, according to Towers Watson.

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