What is the Cadillac Tax? The Affordable Care Act contains a provision that has become known as the “Cadillac Tax” and establishes a tax on health insurance plans with higher premiums. This provision was put in place to help control the increasing costs of health insurance premiums that are generated from benefit-rich health insurance plans. The concern with such plans is that employers are providing benefit-rich plans, which result in higher premiums that are not taxable, instead of providing a higher income and a plan that does not offer as many benefits. Therefore, the employee is receiving the same total benefit, but less tax is being generated from that benefit (because more of the benefit is from the non-taxable premiums).