Cadillac Plan Tax: It Might Be A Big Deal

May 19, 2010 at 08:00 PM

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A looming tax on relatively expensive health benefits packages could end up affecting 60% of large employers in 2018, according to Towers Watson & Company, New York (NYSE:TW).

The "Cadillac plan" excise tax is supposed to take effect in 2018. If implemented as written in the Affordable Care Act – the legislative package that includes the Patient Protection and Affordable Care Act and the Health Care and Education Reconciliation Act – the provision would impose a 40% tax on health plans that provide relatively high-cost health plans.

The 2018 cut-offs are set to be $10,200 for single coverage and $27,500 for family coverage.

The 2010 average coverage cost is now $5,184 for single coverage and $14,988 for family coverage, and, if the average annual health coverage cost increase is 8%, average coverage costs could easily exceed the Cadillac plan cut-offs in 2018, Towers Watson says.

Congress kept the Cadillac plan provision in the ACA package partly because congressional budget analysts suggested the provision could play a major role in holding down health care and health insurance costs.

Towers Watson consultants are suggesting that employers can avoid hitting the cut-offs until at least 2023 by improving wellness, chronic condition management and health consumer education programs.

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