Left-Brain vs. Right-Brain Approaches to the Cadillac Tax
What’s the best way to approach the Cadillac Tax? Although this component of the Affordable Care Act doesn’t take effect until 2020, there are ways to mitigate its impact now from both a left-brained/numbers perspective as well as a right-brained/HR one.
The reality is that all sides of the business matter when it comes to the Cadillac Tax. There are important measures for CFOs to take to help mitigate the financial impact, while HR teams can help prepare the workforce for changes in coverage options. Let’s take a closer look at both sides of the equation.
CFOs: The Numbers Game
Of course, CFOs have an important role to play with regard to the financial impact of Affordable Care Act provisions like Pay or Pay. (Pay or Play requires employers with 50 or more full-time employees to offer minimum essential coverage to “substantially all full-time employees or dependents” or risk being fined $2,000 per employee per year.)
To reduce exposure to the Cadillac Tax from a financial perspective, CFOs can:
- Calculate the total cost of employee health plans to determine whether any plan goes above the Pay or Play thresholds. “Total cost” is defined by the government as premiums paid by both employers and employees—plus any contributions to Health Savings Accounts (HSAs) or other health accounts, as well as the cost of any employee assistance plans that offer counseling benefits, onsite medical clinics, and wellness programs.
- Calculate the tax liability associated with any plan that exceeds the threshold. This simply means subtracting the threshold amount from the total cost of the plan, and multiplying the remaining amount by 40%. The result is the tax payment that will be incurred by that individual plan.
HR Directors: Employee Morale
To help keep employees happy with their coverage—even with lower-cost health plans that are essential for avoiding the Cadillac Tax—HR teams should consider a three-pronged approach:
- Know what to communicate: Be prepared to educate employees about the merits of different plans, such as Consumer-Directed Health Plans (CDHPs) with HSAs.
- Know how to communicate: Speak in the way that will be most effective for employees—if possible, avoid jargon and tailor information to different learning styles.
- Know when to communicate: Plan to provide the key information when employees need it the most, such as during the open enrollment period and the first month of a benefits year.
Teaming Up for Success
Beyond the financial calculations and communication plans, the entire business will need to work together to identify the right plans to offer employees. To effectively avoid the Cadillac Tax, CFOs and HR teams need to choose options that will have the greatest economic benefit for the organization while still satisfying employees—helping ensure that employees move into lower-cost plans.
Get a Head Start
Compliance can be a complex task, and it might be harder than you think. To learn how a benefits specialist can help every department make Cadillac Tax-related decisions, read our recent white paper, “Steer Clear of the Cadillac Tax.”
Need help with the ACA? Tango Health offers a full-service ACA Compliance & Reporting solution and specializes in large, complex businesses. Learn More About our ACA Solution.
Categorized in: ACA