The Cadillac tax: Delayed or destined?

Bob Kocher, MD is a partner at Venrock, focused on healthcare IT and services investments, and a consulting professor at Stanford School of Medicine. Prior to Venrock, Bob served in the Obama Administration as the special assistant to the president for Healthcare and Economic Policy on the National Economic Council. He currently serves on the Boards of Aledade, Lyra Health, and Jiff, is a board observer at Grand Rounds and Doctor on Demand, and is a member of Castlight Health’s Advisory Board. We’re excited to have him here to share his views on the Cadillac tax and explain how employers can prepare for it.


Since the Affordable Care Act (ACA) was signed more than five and a half years ago, employers have been active participants in an ongoing process of learning and adjusting to its reforms. One of the biggest changes that employers and policy wonks have waited for has yet to go into effect, and that’s the Cadillac tax.

The Cadillac tax is a 40% excise tax designed with a two-fold mission: slowing the rising cost of healthcare and raising significant revenue to pay for other components of the ACA. It does so by placing a tax on employers who offer premium health plans to their employees that exceed specified high-cost limits.

Even though it isn’t set to go into effect until 2018, the Cadillac tax has been making news this week, as there are reports that the tax may be modified or delayed for two more years. Whether this delay happens or not, employers would be wise to continue to plan for it. First, its penalties are serious, and no one would want to get stuck paying them. Second, taking steps to reduce healthcare spending – without skimping on quality care – is an important exercise for any company, regardless of the policy pushes or prompts. Thirdly, it is a policy that bipartisan thought leaders support.

So what can you do?

Castlight Health and I aimed to answer that question – and more – in our recent webinar ”The Cadillac tax: Paths to success.” In the webinar we dove into a number of strategies employers are using in anticipation of the tax, including:

    1. Transitioning to a consumer-directed health plan (CDHP) plan design
    2. Introducing more non-health insurance employee health benefits
    3. Capping or eliminating tax-preferred health-related accounts
    4. Limiting access to or more judiciously using high cost providers

In the webinar, Castlight Health explains how its solutions, like Castlight Action, help maximize the effectiveness of your benefits strategy by connecting employees with relevant care and programs at the right time.

A lot is still uncertain with the Cadillac tax, but this is not: employers need to find ways to control their healthcare costs and deliver benefits that keep their employees healthy and happy.