Congress Puts The Brakes On The Cadillac Tax

ThinkstockPhotos-477267686(1)CADILLAC TAX DELAYED

On Friday, December 18, 2015, President Obama signed into law a more than $1.5 trillion omnibus spending and tax extender package containing a two year delay of the forty percent excise tax on high cost health coverage, otherwise known as the Cadillac Tax. Although the Cadillac Tax was estimated to generate a significant amount of revenue to help fund premium tax credits for coverage purchased through the Marketplace and to help slow the increase of health care costs, the measure has been unpopular with politicians on both sides of the aisle and industry stakeholders, who have lobbied extensively for repeal.


Although the measure does not contain the repeal many had hoped for, it does provide employers with a bit more time to develop a strategy to address the impact of the Cadillac Tax on their health plans. Some employers had already begun making modifications to their benefits in an attempt to mitigate or avoid the impact of the Cadillac Tax for the 2018 tax year. Such modifications included reducing or eliminating contributions to account-based plans like health FSAs and changing plan design features like deductibles and cost sharing in an attempt to reduce the overall cost of a major medical plan.

Although talk of repeal persists and seems more likely in light of the passage of this bill, employers may not be able to rest easy quite yet. Benefits strategy and decision making often occur far in advance of the beginning of a tax year, and planning for a non-calendar year plan that runs into the 2020 tax year will likely begin in 2018. As a result, employers may shift their focus to more pressing issues, like ensuring new ACA reporting requirements are completed timely and accurately, but shouldn’t lose sight of the potential impact of the Cadillac Tax on their benefits.


The bill also contained a two year delay of the tax on medical device manufacturers as well as a one year suspension of the health insurance tax, also known as the HIT. The HIT has added a handful of percentage points to the premiums paid by employers with fully-insured group health plans since it became effective in 2014. The one year suspension for calendar year 2017 may result in a temporary reprieve from the tax, which is typically passed through from health insurance carriers to employer plan sponsors. However, it is too early to tell exactly how health insurance carriers will react and whether they might continue to pass through the amount of the tax to employer plan sponsors in anticipation of the amount of the tax to be owed for calendar year 2018.

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