Benefits Buzz

Cadillac Tax Repeal Back on the Table

Posted on December 1st, 2017

Bipartisan efforts (yes, you read that right) are underway to repeal the Cadillac Tax imposed by the Affordable Care Act (ACA). A letter signed by 140 bipartisan members of the House of Representatives (House) urges a repeal this year. Efforts are being led by Congressman Joe Courtney (D-CT-2) and Mike Kelly (R-PA-3). 
 
The Cadillac Tax was originally scheduled to take effect in 2018, but legislation was previously passed which delays its effective date until 2020. This provision of the ACA applies a 40% excise tax on high-cost employer-sponsored health coverage. The intent of the tax is a two-fold designed to 1) raise money to help pay for other ACA provisions, such as Exchange subsidies and Medicaid expansion, and 2) to reduce the number or benefit-rich health plans, which some say leads to unnecessary medical treatment and an overutilization of healthcare services.
 
However, when some of the fine print started to come out in Notice 2015-16 and Notice 2015-52 issued by the Internal Revenue Service (IRS) in 2015, it started to become more clear that a lot of employers would be hit with the tax, including those with “middle-of-the-road” types of plans, absent any significant changes to their benefit structures. 
The Cadillac Tax applies to values of coverage that exceeds $10,200 for single coverage and $27,500 for family coverage, adjusted for inflation. At first glance, those may seem like high values, but here’s what the IRS has proposed would be included in the value of coverage, as quantified by the applicable COBRA premium:
 
  • Employer-sponsored health insurance, whether fully-insured or self-insured
  • Employer-sponsored prescription drug coverage
  • Contributions to Health Flexible Spending Accounts (FSAs) made by the employer or employee
  • Contributions to Health Savings Accounts (HSAs) made by the employer and contributions made by the employee via pre-tax salary reduction
  • Contributions to Health Reimbursement Arrangements (HRAs) made by the employer 
  • Fixed indemnity plans, hospital indemnity plans and coverage for a specified disease or illness (e.g., cancer and critical illness plans) if premiums are paid with pre-tax dollars
  • On-site medical clinics
 
It’s possible that other types of coverage may be added to the list as the IRS considers proposing more regulations. This may include self-insured dental or vision plans and certain employee assistance programs (EAPs), among other plan types.  
 
According to the Kaiser Family Foundation, the average employer-sponsored health insurance premium in 2017 for single coverage is $6,690 and for family coverage is $18,764. When you start to add in FSAs, HSAs and other benefits, it can be easy for an employer to trigger the Cadillac Tax. Some employers, labor organizations and unions are already negotiating and planning for 2020 benefit packages, and it would be welcomed relief to have the Cadillac Tax repealed.  
 

 

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