The Cadillac Tax: What You Need To Know

posted by AHIP

on August 4, 2018

Key Takeaways

Bipartisan legislation would repeal Cadillac Tax, allowing businesses to offer better, more affordable coverage.


Keeping the tax impacts most people with coverage at work, hitting the middle class the hardest.


The tax increases deductibles and other cost sharing, making it more expensive to get medical care.


Will lead to an increase in the uninsured and cut benefits for those with coverage.


Executive Summary

Beginning in 2022, federal law imposes a new 40 percent excise tax on employer-provided health benefits. Within a matter of years, most of the 180 million Americans with coverage at work will see their health care costs go up as a result. The tax applies to premiums, Health Savings Account (HSA) and Flexible Spending Account (FSA) contributions, as well as wellness programs, on-site medical clinics, and other features of health plans. The effect of the looming tax has weakened health care quality.

Companies are working to reducing the total cost of their benefits by increasing deductibles and other cost-sharing in an effort to avoid being taxed as long as possible. Others have dropped spousal coverage or stopped offering valuable benefits like wellness programs and HSA contributions. Congress has already recognized how harmful this tax will be, voting twice on a bipartisan basis to delay the tax. It is urgent that Congress fully repeal this tax to help mitigate the burden of rising deductibles on millions of Americans who rely on health coverage through their employer.