What Employers Need to Know About the Cadillac Tax Delay
On Friday, December 18th, President Obama signed a large spending and tax bill that pushes back the start of the Cadillac Tax from 2018 to 2020. This decision comes after mounting pressure from Republican and Democratic lawmakers, employers and insurers, and businesses and labor unions. These diverse groups argued that the tax unfairly penalizes employers and unionized workers who negotiated generous benefits packages as a key part of their compensation plans.
What is the Cadillac Tax?
The Cadillac Tax was designed to slow the rising cost of healthcare and raise revenue to pay for other components of the Affordable Care Act. It was originally scheduled to take effect on January 1st, 2018. The Cadillac Tax would be a 40% tax on employers who offer premium health insurance plans that exceed specified high-cost limits ($10,200 for individuals and $27,000 for families). The 40% tax applies to the amount above the cost threshold. So, for an individual plan that costs $11,000, the tax would be $320, or 40% of the $800 over the $10,200 limit. Proponents have argued that the tax would discourage companies from offering high-cost health plans to employees, and thus reduce overall healthcare spending.
Does the delay mean the tax is “dead” forever?
The two-year delay buys Congress and the next president time to decide the fate of the Cadillac Tax after the 2016 election. It may well be repealed; every one of the 2016 presidential candidates have said they oppose the tax (including the Democrats who support the ACA). Alternatively, the tax could be enacted as is in 2020, or more likely, be modified or replaced by another revenue raiser.
What does this mean for employers?
In the short term, nothing. There is now no immediate lever forcing an employer to trim benefit packages. If anything, the two-year delay gives employers time to properly assess how their health insurance plans stand under the Cadillac Tax cost limits, and, if necessary, revamp them in anticipation of the 2020 effective date. Even though this key part of the ACA is being delayed, the rest of the healthcare law is very much still in effect–especially new compliance and reporting requirements that start this January.
Reference: Zenefits 12/21/2015