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Cadillac Tax Could Affect 1 in 5 Health Plans


New analysis shows what the effect of high-cost health plan taxes could mean.

Analyzing pie charts for data

The ACA’s tax on high-cost health plans-or “Cadillac Tax”-would affect one in five employers offering health benefits when it takes effect in 2022 unless employers change their health plans, according to a recent analysis.

According to a new KFF analysis, 31% could be affected when workers’ voluntary contributions to flexible spending accounts are taken into account. The analysis comes as bipartisan support to repeal the ACA’s Cadillac Tax is gaining steam.

The tax limits the amount of untaxed health benefits employers can provide to their workers as a tool to slow the growth in overall health spending, according to KFF. It originally was scheduled to take effect in 2018 but delayed by Congress until 2022.

The provision imposes a 40% tax of each employee’s health benefits above a certain threshold, adjusted annually for inflation, according to KFF. In 2022, the thresholds are estimated to reach $11,200 for single coverage and $30,100 for family coverage.

“As the recent court happenings show, the fate of the ACA remains in jeopardy,” says Ronald Hirsch, MD, FACP, CHCQM, vice president of the Regulations and Education Group at R1 RCM Physician Advisory Services. R1 RCM is a leading provider of technology-enabled revenue cycle management services and the company is located in Chicago, IL. “If the ACA remains, the potential to have further delays and modifications also adds to the uncertainty. That makes predictions difficult if not impossible.”

That said, KFF predicts that many employers will adapt by offering plans with higher deductibles and patient obligations.

Related: Studies Suggest ACA Helps With Healthcare Disparities

“But the growth of high-deductible health plans is not new to the healthcare executive,” Hirsch says. “We have seen that offering grow substantially over the last 10 or so years. And along with that growth came the increased challenges of patients who had a high-deductible health plan but have not set aside pre-tax dollars to cover their deductible.

“Many health systems have adapted to this by partnering with organizations such as R1 RCM to be able to calculate the patient’s out-of-pocket obligation prior to the service, taking into account the patient’s prior out-of-pocket payments in the year and the fee schedule negotiated between the payer and the health system, and using that information in real time to ensure there are no surprises,” he says.

If the  plan tax provisions are enacted, the number of patients who will need that real time information will only grow, making its availability no longer optional, according to Hirsch. 

The analysis relies on data from KFF’s 2018 Employer Health Benefits Survey to estimate the share of employers with at least one health plan that would exceed the threshold, with and without FSA contributions since workers could simply stop using those accounts to avoid the tax.

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