Healthcare.jpgThis blog post was authored by Heather DeBlanc

In 2018, health plans too rich in coverage will have to pay a “Cadillac Tax.”  Public employers, who have traditionally provided generous health benefits, are starting to consider the impact. 

The IRS will impose the excise tax on insurers and plan administrators.  Employers anticipate that these costs will be passed down through increased premiums.  The IRS will measure the cost of an employer’s coverage against an applicable dollar limit.  The excise tax totals 40% of the “excess benefit” over that applicable dollar limit.  In 2018, the applicable dollar limits are $850/month for employees with self-only coverage and $2,291.67 per month for employees with other than self-only coverage.  The applicable dollar limits are also subject to certain adjustments. 

Public employers who wish to move toward cheaper plans to avoid this tax will need to negotiate those changes with unions.  The New York Times recently reported on this issue and indicated that the union response to such proposed changes has been “cool.”  The article also indicated that union leaders resent that the tax is being used as a negotiating tactic to push the union to accept greater out-of-pocket costs to reduce the increase in premiums. 

In connection with this new law, employers will also bear the burden of calculating the amount of the excess benefit and will face tax penalties for failure to accurately calculate that excess benefit.  We expect the IRS to release further guidance to provide employers with further information on how to calculate and report this amount.