The budget and tax package passed by Congress on December 18, 2015, and signed by the President, includes a two-year delay of the controversial excise tax on high-value health plans (a.k.a., the Cadillac Tax), part of the Affordable Care Act (ACA). Here is what its delay means for employers:
The Cadillac tax was slated to begin in 2018, but the new law delays the start date to 2020.
- Employers will have two more years to study and implement plan design changes and cost management solutions to postpone and avoid the tax as long as possible.
- If the excise tax is not further delayed or repealed, the legislation provides that the tax is deductible as a business expense.
- The new law does not affect the ACA reporting requirements due to begin in early 2016.
The Excise Tax on High Cost Employer-Sponsored Health Coverage generally imposes an additional 40 percent excise tax on health plans valued over a statutory threshold ($10,200 for individuals and $27,500 for a family for 2018). The excise tax takes into account both insured and self-insured plans, as well as governmental plans, multiemployer plans, and the health insurance coverage of a self-employed individual. Employers are responsible for calculating the 40% excise tax on the portion of group health plan premiums that exceed the statutory threshold and reporting the excess benefit and amount of tax to the Secretary of Treasury. To the extent the coverage is provided through insurance, the insurance issuer pays the tax. It is generally expected that insurers and multiemployer plans would pass the excise tax on to employers in the form of higher premiums.
The Cadillac tax will remain the subject of intense scrutiny and debate unless repealed prior to its new effective date of 2020. Those opposed to the excise tax say it promotes the trend of health care cost shifting to workers. However, its proponents view the excise tax as an essential pillar of the law because it funds other provisions of the ACA and is designed to slow the rise in health care costs and make the health care system more efficient.