Part of the funding bill that reopened the federal government at the end of January further delayed the implementation of the so-called “Cadillac tax” on employer-sponsored health plans – this time by two more years.
That means the excise tax will instead take effect on the most expensive of employer-sponsored plans in 2022. Employers and labor groups have generally applauded the delay, but are still calling for its complete elimination.
The Affordable Care Act imposes an annual 40% excise tax on plans with annual premiums exceeding $10,800 for individuals or $29,500 for a family starting in 2020, to be paid by insurers. The tax only applies to the portion of the premium that exceeds the threshold amount.
While the tax would be levied on insurers, they would pass the cost on to policyholders.
The premium is the total amount that the insurer charges, regardless of how that premium is shared between the employer and employees.
American Benefits Council president James A. Klein says the move to delay implementation of the 40% tax on the most expensive plans until 2022 was crucial for maintaining strong worker benefits.
“Because companies typically make health plan decisions 18 to 24 months in advance, employers were reluctantly considering curtailing benefits or increasing workers’ out-of-pocket costs to meet the prior 2020 deadline,” he says.
Insurer, employer and labor groups have argued that if the law goes into effect, many employers would choose to reduce benefits in order to fall under the Cadillac tax threshold.
Almost a quarter of employers that provide health insurance to their workers were likely to be hit by the tax in the first year, according to an analysis by the Society of Human Resources Management.
The Cadillac tax was originally set to take effect in 2018. However, in December 2015, a law delayed the start date to 2020. The recent action puts that off to 2022.
Although there is wide bipartisan support for repealing the tax, Congress has been unable to pass legislation doing so because of disagreements over how to replace the future lost revenue to government coffers.
So for now, unless it is revoked, as an employer you should take this tax into consideration if you are making changes to your plan design.
Stay mindful of your health insurance costs and keep track of federal guidance/legislation that may alter the tax.
We will also continue keeping you informed of any legal or regulatory changes affecting the ACA, and how they impact your organization.