Employee Benefits Compliance, Taxes, Fees & Penalties

Cadillac Tax Delayed to 2020

On Friday, December 18th Congress voted to delay the Cadillac tax for two years, so it will not be effective until 2020 rather than in 2018. The provision is one small part of the $1.1 trillion Consolidated Appropriations Act of 2016, a government spending and tax-break package also known as the omnibus and tax reform bill.  The President is expected to sign the bill this week.

The Cadillac tax is a 40% excise tax on the total monthly cost of employer-sponsored health coverage above a specified dollar amount (the tax threshold). In the past year it has come under fire from both Democrats and Republicans, as well as from employers and industry groups, and there was growing bipartisan support to completely rescind the tax.

Additional Changes to Cadillac Tax In addition to delaying the effective date of the excise tax to 2020, the Omnibus bill also makes the following changes:

  • Since the tax threshold amounts are indexed based on the Consumer Price Index (CPI), delaying the effective date will result in a higher threshold above which the tax applies. For 2018 the tax thresholds would have been $10,200 for single coverage and $27,500 for other-than-single coverage.
  • The Cadillac tax will be fully deductible for any entity to which it applies (e.g., employers and insurers). As initially written, it would not have been deductible.
  • The Omnibus bill also directs the comptroller to undertake a study (in consultation with the National Association of Insurance Commissioners (NAIC) on ways to adjust the threshold to take into account the age and gender makeup of an employer’s workforce.

HIT Tax Suspended and IPAB Defunded The Omnibus bill affects several other Affordable Care Act provisions, including:

  • It suspends the health insurance industry fee for 2017. This is often referred to as the “HIT” tax or health insurance tax. This tax applies to insured plans only, so has provided an incentive for insured employers to change to self funding to avoid this additional tax.
  • It defunds the Independent Payment Advisory Board (IPAB), a 15-member panel of health care experts created by the ACA (sections 3403 and 10320) and tasked with making annual cost-cutting recommendations for Medicare if Medicare spending exceeds a specified growth rate.

The bipartisan vote on the Consolidated Appropriations Act was 316 to 113 in the House, and 65 – 33 in the Senate.