The so-called "Cadillac Tax" on certain high-cost healthcare plans that was scheduled to take effect in 2018 has been delayed until January 1, 2020. This legislative change, which is part of the Consolidated Appropriations Act of 2016, delays imposition of the Cadillac Tax and also amends the Affordable Care Act (ACA) to make the tax a tax-deductible expense for the employers, insurers, and plan administrators who are required to pay it. This is welcome news for many employers that opposed the Cadillac Tax.
The Cadillac Tax was added to the Internal Revenue Code by the ACA. It imposes a 40 percent excise tax on high-cost employer-sponsored group health plans.
A high-cost employer-sponsored group health plan is a plan in which the aggregate annual premium cost of applicable coverage provided to employees exceeds $10,200 for self-only coverage, and $27,500 for other than self-only coverage, with limits adjusted annually. Employer-sponsored group health plans include group health plans, flexible spending accounts, pre-tax contributions to health savings accounts, retiree benefits, and other forms of coverage. The health insurance provider (if the health plan is fully insured), the employer providing the health insurance (if the health plan is self-insured), or the plan administrator (in the case of any other applicable employer-sponsored coverage) is responsible for paying the Cadillac Tax, which was first scheduled to become effective in 2013, but was subsequently delayed until January 1, 2018. Now the Cadillac Tax will not apply until 2020.
The second significant change to the Cadillac Tax is the deductibility of the tax when imposed, which will reduce the cost of the tax to employers. Most employers will not be directly liable for the Cadillac Tax. However, if a health insurance provider or plan administrator is responsible for paying the tax, these entities would most likely require reimbursement for the tax from the employers. If the Cadillac Tax is non-deductible, the reimbursement payments would also be taxable income to the health insurance providers or plan administrators, and these entities could require reimbursements for the additional taxes. Thus, employers would potentially be responsible for the 40 percent excise tax and any additional taxes. As the Cadillac Tax is now deductible, the potential reimbursement payments to health insurance providers or plan administrators would be lessened and limited only to the 40 percent excise tax.
The Comptroller General of the United States and the National Association of Insurance Commissioners (NAIC) have been charged with investigating whether the age and gender benchmarks currently used by the ACA to determine the annual premium cost dollar limits for the Cadillac Tax are suitable and providing more suitable benchmarks, if necessary. The Comptroller General and the NAIC are to report on their findings to the Senate Finance Committee and House of Representatives Ways and Means Committee by no later than June 2017.
Although the Cadillac Tax was intended to provide revenue to fund the ACA and ultimately lower health costs, it has been under constant scrutiny and criticism from employers and politicians since the inception of the ACA. Therefore, the delay of the tax is not a surprise, and opponents are expected to continue to work for its repeal. Health insurance providers, employers, and plan administrators should continue to review employer-sponsored health coverage to assess whether any revisions are necessary before January 1, 2020, in order to avoid the Cadillac Tax.
