Congressional Democrats today introduced a bill to repeal the Affordable Care Act’s “Cadillac Tax.” Judging by the number of Congressmen moving to co-sponsor the bill, it appears the Cadillac Tax is as largely disfavored on Capitol Hill—at least in the House of Representatives—as it is in the employer community. The bill has at least 65 co-sponsors, including several Republicans, and the strong support of organized labor. The legislation is called the “Middle Class Health Benefits Tax Repeal Act.”
The Cadillac Tax is a nasty 40-percent penalty tax on high-value health plans. It applies beginning in 2018 to an employee’s employer-based health coverage that, in the aggregate, has premium values in excess of certain thresholds. The 2018 thresholds are $10,200 for self-only coverage and $27,500 for family coverage, although there are several exceptions.
Employers whose health coverage exceeds these thresholds will end up paying the tax directly or indirectly. The tax was designed to force employers to ratchet down the richness of their health plans, thus requiring covered employees and their dependents to pay a larger share of their medical expenses. In theory this would ultimately lead to a reduction in healthcare consumption, which in turn would lead to reduced healthcare costs.
The problem is that nearly half of current employment-based health plans are expected to trigger the excise tax in 2018, and ultimately even plans with the ACA’s “minimum value” (60 percent actuarial value) will trigger the tax. That fact, coupled with both the size of the tax and what is shaping up to be a horrendously complicated administrative scheme, leaves the tax with few friends.
Nevertheless, repealing it isn’t as easy as it sounds. The tax was projected to raise almost $90 billion over 10 years, cash that federal authorities were to use to help pay part of the cost of the Affordable Care Act. Congress will either have to accept the hit to the deficit caused by repeal of the tax, or find another way to raise the lost revenue.
The IRS recently issued a request for information (RFI) on the Cadillac Tax, seeking input from employers and others about the tax and how coverage values should be calculated, and how the tax should be administered. See Lockton’s Alert on the RFI; the Alert is authored by Mark Holloway.