Friday, June 5, 2015

ACA FAQ of the Month: What Is The Excise Tax on Cadillac Plans?

June 2015
By: Peter E. Hansen, Esq.

The specter of excise taxes on so-called “Cadillac plans” has been present for several years now, but until recently, we had little more than guesses as to how it would work in practice. The IRS recently released preliminary guidance on this issue that, true to form, answers some questions while raising others.

The excise tax’s general goal is to slow the growth of healthcare costs; it aims to accomplish this goal by applying a 40% nondeductible tax to “applicable coverage” exceeding certain thresholds. Those thresholds are:  $10,200 for individual coverage; $27,500 for family coverage; and, $27,500 for multiemployer plans. Significantly, “applicable coverage” includes the value of major medical coverage, HRAs, HSAs, and FSAs, but does not include dental or vision benefits. So, assuming that the IRS does not adjust its numbers, the taxes have the potential to impact a significant number of health plans.

Perhaps most importantly, the preliminary guidance reminds us that the IRS has not forgotten about the tax – and neither should we. In the meantime, employers should begin thinking of ways to lower the cost of health coverage.

Questions? Suggestion for a future ACA FAQ of the Month? Please contact WS Attorney Peter E. Hansen at (262) 560-9696, or email