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Reports Overstate Reach of “Cadillac Tax”

Recent press reports citing a Kaiser Family Foundation analysis seriously exaggerate the expected impact of health reform’s excise tax on high-cost health plans (or “Cadillac tax”), which this week’s bipartisan budget agreement delays by two years.  As we’ve explained, Treasury Department estimates showed that the tax would have affected only a tiny share of workers and an even tinier share of health plan costs in 2018, its originally scheduled start under health reform.

The Kaiser analysis counted an employer as facing the tax if the employer offers at least one health plan in which at least one participant would exceed the tax’s threshold by even one dollar, if that participant contributes the maximum possible amount to a health flexible spending account.  By this metric, the tax could have affected as many as one in four employers in 2018.  But the effect would be negligible or small in the vast majority of cases, as the Treasury estimates show.

In fact, the Treasury analysis found that only 4 percent of people with employer-sponsored coverage will be enrolled in plans whose projected costs exceed the threshold in 2018.  Even this figure overstates the tax’s effect, however, since the tax applies only to the portion of plan costs over the threshold.  That’s just 1 percent of plan costs in 2018, Treasury finds (see graph).  The comparable figures for 2020 — the tax’s new start date — would be only slightly larger.