Congress Delays Implementation of "Cadillac Tax"

Posted by Charles Middleton on 12/18/2015

Q: I understand Congress is going to delay the Affordable Care Act's so-called “Cadillac tax.” Is this correct?
A: Yes. Congressional leaders recently reached a deal to fund the federal government and extend certain expiring tax breaks. This spending package includes a two-year delay, from 2018 to 2020, of the so-called “Cadillac Tax,” which is a nondeductible excise tax that was enacted as part of the Affordable Care Act.
Q: What is the Cadillac Tax and how does it work?
A: The Cadillac Tax is a 40 percent nondeductible excise tax on high-cost health coverage that applies to the cost of employer-sponsored health coverage exceeding certain limits: $10,200 (self-only coverage) and $27,500 (family coverage) for 2018. The Cadillac Tax taxes the amount by which the monthly cost of an employee's employer-sponsored health coverage exceeds the specified limits. The tax is imposed on employers, insurers and/or entities administering plan benefits. The tax is designed to raise revenue to offset the cost of other provisions of the ACA and to reduce the demand for high-cost coverage by making it more expensive.
Q: Why are employers upset over the tax?
A: Large employers have been working so hard the past few years to comply with the ACA's play-or-pay rules, which penalize large employers for not offering certain levels of health coverage. So much time and money has been spent by employers trying to identify their full-time employees and determine what coverage needs to be offered to avoid the potentially significant penalties. For many employers, their health care costs are the second-highest expense behind salaries. So, while employers are working hard to comply with the rules, the ACA's Cadillac Tax seems to be at odds with the ACA mandate to offer coverage.
Q: Doesn't the Cadillac Tax only apply to employers with very rich health plans?
A: That was apparently the intent, but unfortunately the Cadillac Tax will likely affect a broad range of employers. While we've all been referring to the tax as the Cadillac Tax, it appears from some of the proposed regulatory guidance issued earlier this year that the tax is likely to sweep in a broader range of health plans.

Published The Oklahoman, December 18, 2015