One in four, or roughly 26 percent of, U.S. employers that offer high-cost health care plans could soon be hit with a hefty new Obamacare "Cadillac tax" when it takes effect in 2018, impacting an estimated 42 percent of employers by 2028, according to a new analysis released Tuesday.
The Kaiser Family Foundation found that 26 percent of employers offering health benefits could be forced to pay the new Affordable Care Act tax when it first takes effect in 2018, unless they are able to reduce overall spending on the plans, reported The Washington Times. Many of those employers will have to pay the tax because they offer flexible spending accounts to workers, which, ironically, are supposed to reduce those employees' income tax burden, explained NBC News.
The tax takes effect once total spending on a health plan, including employer and employee premium contributions, surpasses $10,022 for an individual and $27,500 for a family. Total spending also includes any contributions made to a flexible spending or health savings account.
The analysis concluded that the tax will probably result in flexible spending accounts being phased out by companies looking to reduce their tax burden.
"The potential of facing [a high-cost plan tax] assessment as soon as 2018 is encouraging employers to assess their current health benefits and consider cost reductions to avoid triggering the tax," the analysis says.
"In the next few years, when some employers will be subject to the Cadillac tax, I would expect some employers to drop FSAs. Over time, the expectation is virtually every employer will be subject to the Cadillac tax," said Larry Levitt, senior vice president of the Kaiser Family Foundation, reported The Washington Examiner.
To avoid the tax, employers could decide to increase deductibles, eliminate previously covered services, or cap or eliminate tax-free savings accounts. They could also limit the network of providers employers can use, according to the Examiner.
"One of the effects (of the tax) will likely be cutbacks in benefits," Levitt said. "The breadth of effects from this tax grow significantly over time, and eventually the vast majority of workers will find themselves with changes in their health benefits as (a result) of this tax."
Regardless of what the employer does, the employees will ultimately be left with shouldering additional costs. "For the most part, these changes will result in employees paying for a greater share of their health care out-of-pocket," the report reads.
The tax was designed to generate an estimated $87 billion in revenue over the next decade to offset the cost of the government's new health care law. Lawmakers also wanted to stem health care spending inflation by imposing a steep levy on high-cost plans, according to NBC.
And while the tax may work as expected, it has turned into a source of frustration for insurers and employer groups alike.
Just last week, a coalition of public and private employers and employees, including Cigna, Blue Cross Blue Shield, the American Benefits Council and Pfizer, sent a letter to Congress arguing the tax would hurt employers' ability to retain quality workers.
"While Congress' original intent was to target only a small number of 'overly rich' plans, nonpartisan analyses reveal that it will hit modest health plans that are expensive simply because they are offered in high-cost areas; or because they cover large numbers of people whose health costs are typically higher than average," the coalition wrote.
