I’ve given seminars on Medicare education to concerned seniors in my geographical area. A lot of them are looking to leave their health plans and go onto Medicare and a Medicare Supplement. This has proven, in many cases, to result in lower premiums and/or annual out of pocket costs for those involved in this type of decision. However, retirees of certain companies have been offered the best of the best health plans to continue with them into retirement. My advice in most cases was to stick with that plan. Their premium costs are low and their benefits are all but unbeatable.

This is proving not to be the end-all solution anymore. Some companies are doing away with their retirement health plans and offering a sort of stipend to the retirees instead (and then those retirees can use that “stipend” to buy whatever plans are available. Other companies are changing their plans all together–lowering the value and amount of benefits that subscribers are used to. Others are simply dropping retirement health plans all together. If you see this happening or it is happening to you, you may want to know why. I want to explain it in simple terms so you know what to expect in the next few years.

The Basic Idea

Cadillac TaxThis tax is part of the Affordable Care Act of 2010.  The first part is the familiar “Obamacare” that everyone talks about these days.  This is, for all intents and purposes, the second string which is aimed to take effect in 2018.  The basic rule is this (and there are some variants): if your individual healthcare costs $10,200 or more (total), there is an “excise tax” of 40% over that $10,200.  For example, if your plan costs $11,000 per year, there will be a excise tax of $320.  Most employers aren’t going to pay that, so it will be passed onto you.

Where this comes into play are the big companies. GM is one (of course, they make the Cadillac, right?  hehe), but there are others.  Let’s say you have retired from a long time working at this company.  You retire and they give you this incredible healthcare package.  You may get the one that pays 90% of everything or whatever, but you only pay $50 per month.  Think about the actual cost of that plan.  You may only pay $50 per month ($600 per year), but your employer has invested in your years and may be paying $950 per month ($11,400 per year).  Your $50 per month may not equal $10,200 per year, but with your contribution and your employer’s contribution combined, the cost is $12,000 per year. If that company decides to keep that plan, you (more than likely) will be assessed a tax or $720 for that year.

What This Means for You

Of course, that tax can be handled quite a few different ways.  The easiest for the employers would be to pass on that extra expense to you. Another way companies can handle it is to lower the benefits (to get under the $10,200 cap) and keep you on a retirement healthcare plan.  Of course, this would mean less coverage for you. Maybe, as I’ve seen, the employers will stop providing healthcare for Medicare-eligible retirees. There are a few things you can do to prepare.

Watch For More Information From Your (former) Employer

MailboxKeep an eye out for changes or notifications from your old employer. There may be details forthcoming about future plans for your healthcare. You can be informed of either of the options above or even others. As each company makes its own decisions, your best bet is to be informed.

Keep Up With Changes

There is a wealth of information out there on the changes to this bill.  The goal of this site, however, is to keep things simple.  If you hear of any changes after reading this, feel free to comment below. Otherwise, pay close attention to anything mentioned on the news or other places about the Cadillac Tax.  This can affect you!

Look For Possible Alternatives

Whatever the information and changes are, it may be a good idea to start looking for alternatives. It may not necessarily be time to shift to a different plan, but keep in mind that a plan that you try to get into outside of work does get more expensive the more birthdays you have.  Between now and 2018, some of us will have three or four birthdays by then. Prices for Medicare Supplement plans will definitely be affected, especially for age-lock-in rated plans that are Issue-Age.

Plan For Extra Taxes

Cadillac TaxIf all else fails, maybe you’re happy with your current plan. If that is the case, and your employer is staying the course with their plan has a cost over the cap, be prepared to pay extra taxes. Keep in mind that if your plan costs is $15,000 per year, this could mean $1,920 in extra taxes. This may be worth it to you in your current financial situation. If you do have extra funds, you can actually lower your tax bracket by funding an annuity. This will take away some of the brunt of the tax. There will be more on this in a future post.

Final Thoughts

Cadillacs may be fun to drive, or great to look at. However, the Cadillac tax can bring many changes for a lot of people in the future. What questions do you have? What company did you work for and what are they doing so far with health benefits for you? Comment below!

RaphaelAbout MedicareI've given seminars on Medicare education to concerned seniors in my geographical area. A lot of them are looking to leave their health plans and go onto Medicare and a Medicare Supplement. This has proven, in many cases, to result in lower premiums and/or annual out of pocket costs...Making Senior Health Simple