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What is the Cadillac tax and how does it affect on-site and near-site employer health clinics?

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Among the many aspects of the Affordable Care Act (ACA) that continue to be in flux is the “Cadillac” tax on employers. The ACA’s high cost plan tax (HCPT) would impose a 40% excise tax on employers for healthcare plans offered to their employees that exceed $10,200 in premiums per year for individuals and $27,500 for families.

The Cadillac tax was originally scheduled to take effect in 2018 but has been delayed until 2020. There is now uncertainty as to whether that will be extended until 2025 or whether the tax will be repealed. The continuing debate over the ACA and its potential replacement may impact the implementation of the tax as well.

If it remains intact and does take effect within the next few years, how does this tax affect employers offering on-site and near-site health clinics?

It appears the Cadillac tax will actually have very little impact on employers’ decisions to offer on-site and near-site clinics, as the benefits for them outweigh the costs. As reported in Forbes, “Employers are taking a long-term view of worksite clinics as a way to control healthcare costs.” Employers continue to offer these clinics to their employees in growing numbers.

Employers who offer on-site and near-site clinics as employees see it as a benefit for their employees’ overall health, which proves to also benefit the employer. Employees who have access and become engaged in their own healthcare, including preventative care, tend to be healthier with higher productivity and lower absenteeism. On-site clinics have also proven to be helpful in managing employees’ chronic conditions effectively.

Even with the Cadillac tax looming, employers still see the on-site and near-site clinic as being a cost-effective option for providing healthcare to their employees. In fact, David Keyt, a Mercer principal, says that “the cost of offering a clinic is usually low single digits as a percentage of the overall healthcare spend for a given employer.”