The ACA will levy a 40 percent excise tax on insurance companies and plan administrators that provide high-cost group health coverage, effective in taxable years beginning in 2018. This tax, also known as the “Cadillac tax,” is intended to encourage companies to choose lower-cost health plans for their employees.
The Cadillac tax provision, found in Internal Revenue Code section 49801, taxes the amount, if any, by which the monthly cost of an employee’s applicable employer-sponsored health coverage exceeds the annual limitation (called the employee’s excess benefit).
The “Cadillac tax” is intended to encourage companies to choose lower-cost health plans for their employees.
The annual limitations (as of July 2013) are:
* $10,200 for single coverage and $27,500 for families.
* $11,850 for single coverage and $30,950 for families for retirees above age 55 and for plans that cover employees in high-risk professions.
The amount of the tax for each employee’s coverage will be calculated by the employer and paid by the coverage provider who provided the coverage. This excise tax does not apply to stand-alone dental and vision plans.
Beginning in 2019, the thresholds will be indexed to the rate of general inflation plus 1 percentage point. The Internal Revenue Service (IRS) is expected to issue guidance on the Cadillac tax requirements before they become effective in 2018.
