Have you heard about these so-called “Cadillac” medical plans? This is the government’s name for health plans that are above $10,200 per individual and $27,500 for family coverage; the idea behind calling them “Cadillac” is that they can be thought of as medical plans for the “rich.”
Part of the Affordable Care Act outlines what ACA proponents call the “Cadillac tax,” which is a tax the government believes will help fund benefits to the uninsured under the ACA. It will force employers to pay a 40% tax on the cost of any Cadillac health plans they offer their employees.
When the Cadillac Tax Goes into Effect
When the Cadillac tax starts in 2018, it is estimated that one in four employers could be affected by the regulation. In other words, 25% of employers would be compelled to change their benefit structures; that means offering fewer benefits and less coverage to their employees. Does that sound fair? Of course not.
And as if that wasn’t significant enough, a study by The Kaiser Family Foundation reported that the Cadillac tax could impact even more employers as their costs rise – nearly one third of the nation’s employers by 2023 and 42% of employers by 2028, if those employers’ plans remain unchanged and health benefit costs continue to rise as they have been.
To avoid being “penalized” (that’s essentially what is happening), many employers are already raising their co-payments and deductibles – and, they’re also shaving away some of the coverage they were previously offering. Part of that is giving their employees more restrictive provider lists, a move that some employees may not be happy with (and understandably so).
A Solution to the Cadillac Tax on Health Plans
How can Cadillac health plan penalties like these be avoided? If employers choose a benefits model like direct contracting, they can circumvent much of this catastrophe. Direct contracting lets employers provide the coverage, benefits and high quality providers of a Cadillac health plan without the high cost; dollar for dollar, what direct contracting offers is equal or greater to what is available in a Cadillac health plan. But because they don’t pay the high cost, the plans don’t need to qualify as “Cadillac” – and therefore, the Cadillac tax can be avoided.
This is the best possible way for employers to deal with the Cadillac tax healthcare crisis! For more information, contact GM&A. We will be happy to discuss direct contracting with you.