The Cadillac tax isn't dead but it will stay suspended a while longer.
On Jan. 22, the U.S. Senate approved a two-year delay on the 40 percent excise tax on high-value health care plans as part of the measure to restore funding to the federal government through Feb. 22. The House was expected to vote in favor of the measure shortly thereafter and send it to President Donald Trump, ending a partial government shutdown after three days.
Both political parties supported the provision to postpone the Affordable Care Act's so-called Cadillac tax from taking effect until 2022, instead of in 2020—as did the Society for Human Resource Management (SHRM).
In December 2015, Congress passed and President Barack Obama signed an initial two-year delay of the Cadillac tax, changing the effective date from 2018 to 2020.
SHRM Advocates Full Repeal of Tax
"SHRM has long advocated for full repeal of the excise tax and applauds the new two-year delay," said Chatrane Birbal, senior advisor of government relations at SHRM. The postponement "is an acknowledgement by Congress of the importance of employer-sponsored health insurance, which provides benefits to over 178 million Americans and their families."
The delay will help employers hold down employees' health care costs, but "SHRM will continue to support and encourage Congress to fully repeal the excise tax," Birbal said.
While the excise tax is only intended to target high-value plans, "modest plans will also be impacted," wrote Johnny C. Taylor, Jr., SHRM-SCP, president and CEO of SHRM, in a Jan. 19 letter to Senate Majority Leader Mitch McConnell (R-Ky.) and Minority Leader Charles Schumer (D-N.Y.).
Taylor wrote, "This means millions of Americans and their families could face higher co-pays and deductibles, causing some to decline employer-provided health care."
[SHRM members-only toolkit: Complying with and Leveraging the Affordable Care Act]
Employer Groups Applaud Delay
"We applaud efforts to delay the Cadillac tax that is driving up health care costs for millions of Americans," said James A. Klein, president of the American Benefits Council in Washington, D.C., a trade association for large plan sponsors. "We will continue our efforts to fully repeal this onerous tax that forces employers to reluctantly cut benefits and increase out-of-pocket costs for employees in an attempt to avoid it. We appreciate Congress including this two-year delay as a down payment for full repeal."
"Employer plans are driving innovations that improve the health of employees and their families and that provide more affordable, higher quality health care for all," said Steve Wojcik, vice president of public policy at the National Business Group on Health in Washington, D.C., an employers group. "There is widespread, bipartisan support to repeal this tax, which if it takes effect, would drive up costs for employers and employees alike."
With the new delay, the excise tax will be imposed beginning in 2022 on the cost of health plan coverage that is more than these pre-determined annual limits:
- $10,200 for individual coverage ($11,850 for qualified retirees and those in high-risk professions).
- $27,500 for family coverage ($30,950 for qualified retirees and those in high-risk professions).
These limits are indexed to the Consumer Price Index and may be increased for inflation. While the tax was originally non-tax deductible, the December 2015 changes make it tax deductible for employers who pay it.
The coverage provider must pay the excise tax:
- For self-funded plans, the employer plan sponsor is responsible for payment.
- For fully insured plans, the insurance carriers are responsible for paying the tax, which would likely be passed on to covered individuals in the form of higher premiums.
The stopgap funding bill also amends other tax provisions that were part of the Affordable Care Act, such delaying the medical device tax—a 2.3 percent tax on the sale of certain devices—until 2020. In addition, the bill would extend the Children's Health Insurance Program (CHIP) for six additional years.
Related SHRM Article:
'Cadillac Tax' Will Hit Majority of Employer Plans,
SHRM Online Employment Law, October 2017
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