The Cadillac Tax has been Delayed Until 2020 – What is the Next Step for Employers?
Congress passed and President Obama signed a $1.1 trillion spending bill on December 11, 2015. An important part of that legislation for the employer community is the fact that the so called “Cadillac tax” implementation has been delayed until 2020, a two year delay. The “Cadillac tax” was part of the Affordable Care Act (ACA) also known as Obamacare. Under that law, there is a 40% excise tax applied to group health plan premiums, which exceed annual costs of $10,200 for single coverage and $27,500 for family coverage. There are estimates that as many as 30% of US employers would have been subject to the tax in 2018, the original effective date.
Another important part of the legislation is that it permanently makes the tax deductible to employers. The legislation also calls for a study by the comptroller of the US to look into adjustments in the thresholds due to the ages and genders of an employer’s workforce.
Many view this delay as the first step to repealing this law all together. The upcoming presidential elections will of course have an impact on this future of this tax. There are many organizations lobbying on behalf of repeal. However, this tax represents a major portion of the funding for ACA so repeal is not a given.
Strategic planning is still necessary as even more employers are likely to surpass these thresholds in 2020. According to a recent National Business Group on Health survey, 72% of those surveyed expect at least one of their benefit plans to hit these limits in 2020. There are many suggested strategies being touted in the benefits world. They range from reducing plan benefits to implementing defined contribution funding to restricting spousal coverage. Many of the suggested strategies will have a major impact on employees’ cost and coverage and may not achieve the desired result. It is important to work with your benefit advisor to understand the cost impact of these changes as well as the cultural impact to your employee population.