The excise tax was included in the Patient Protection and Affordable Care Act (PPACA) passed into law on March 23, 2010. The provision levies a 40% nondeductible tax on the annual value of health plan costs for employees that exceed $10,200 for single coverage or $27,500 for family coverage in 2018. Data reveals that the average 2010 cost of medical coverage for active single and family plans is $5,184 and $14,988, respectively. When these figures are projected out to 2018 with reasonable estimates of future health care inflation, the excise tax is often triggered.
As a result of the excise tax provision, a plan with single coverage costs of $11,200 in 2018 would exceed the limit by $1,000 and be assessed a tax of $400. If 10,000 employees were enrolled in that plan, the total tax bill would be $4,000,000. The tax is paid by the employer either through increased premiums on an insured plan or a surcharge levied by the administrator of a self-funded health plan. Employers will be forced to either absorb the additional tax or pass some, or all, of it back to employees in the form of higher premiums.
Health care reform’s so-called “Cadillac plan” excise tax will affect more than 60% of large employers’ active health plans by the provision’s 2018 effective date.