Nearly a quarter of employers will be hit by the Affordable Care Act’s (ACA's) 40% excise tax on high-cost healthcare plans if it is implemented in 2022, according to a new analysis.
The analysis, published Friday by the nonprofit Kaiser Family Foundation (KFF), estimated that 21% of employers offering health plans will have at least one plan affected by the excise tax when it goes into effect by 2022. The percentage is expected to grow due to increasing healthcare costs.
“Given that most estimates suggest that health costs will continue to increase faster than inflation over time, a growing number of employers will be subject to the tax unless they make changes to their health programs,” the KFF said.
The tax on so-called “Cadillac” plans has been deeply unpopular with both Republicans and Democrats and has never gone into effect as Congress has repeatedly delayed it. The tax was created in the ACA as a roundabout way to target the tax exemption for employer-sponsored insurance.
The KFF’s analysis is based on the expected value of plans that provide single coverage because of how complex family coverage is defined. The analysis used data from the 2018 Kaiser Employer Health Benefits Survey to calculate the employers that would exceed the threshold.
The tax is triggered when the cost of an employer plan surpasses $11,200 for an individual and $30,100 for a family. The cost is calculated based on spending on total health benefits such as the average cost of the plan, employer contributions to a health or flex spending account (FSA) and the value of coverage in certain on-site medical clinics, the KFF said.
The percentage of employer plans affected would also increase by 2022 if contributions from the employer to FSAs are included. Because an employee can choose whether to contribute to an FSA, the analysis includes the potential impact for both choices.
If an FSA employer contribution is included, then the percentage of employers with at least one plan affected by the tax jumps up from 21 to 31% in 2022.
“The impact of adding the FSA contributions is substantial because the maximum FSA contribution employees can elect (up to an estimated $2,900 in 2022) is quite large relative to the threshold,” the analysts said.
The percentage of plans to be affected by the tax is expected to grow over time.
For instance, employers with at least one plan affected by the tax will increase to 28% in 2025 and 37% in 2030, and that isn’t factoring in the FSA contribution. The percentage of affected employers increases to 38% in 2025 and 46% in 2030 when including the FSA costs.
It remains unclear whether Congress would allow the tax to ever take effect.
Opposition to the tax is uniquely bipartisan. Key Democratic constituents such as unions are adamantly opposed to the tax, because costly health plans are a key benefit they promise members, and Republicans have steadfastly opposed it.