ACA Fact vs. Speculation III – The Newly Redesigned 2020 “Cadillac”
Who hates the Cadillac Tax? Show of hands? Wow, that’s a lot of you. Oh, I even see several presidential candidates out there with their hands raised. Yes, we know…when you repeal the whole Affordable Care Act (ACA), the Cadillac Tax will go away, too. We discussed that point last time.
Just about everyone is glad that the Excise Tax on high-cost health plans (aka the Cadillac Tax) was delayed until 2020. In addition to extending the effective date, the Consolidated Appropriations Act, 2016 made it easier for some employers to deal with the expense of the Cadillac Tax by making it a deductible business expense. But this only takes some of the bite out of the 40% excise tax and it only helps if the organization files income taxes. Deductibility doesn’t benefit public agencies and not-for-profit organizations that, generally, don’t pay income tax.
The spending bill also commissioned a study to determine the appropriate benchmarks that should be used for age and gender adjustments to the Cadillac tax thresholds (currently $10,200 for singles and $27,500 for families). The U.S. Comptroller General and the National Association of Insurance Commissioners will report to the Senate Finance Committee on the suitability of the current benchmark for age and gender adjustment of the Cadillac tax threshold and make recommendations regarding a more suitable benchmark. Employers have been awaiting rules on the age and gender adjustment for some time. It appears those rules will not arrive until after this report in the latter half of 2017.
Adjustment to the thresholds with age and gender factored in will be very important in how the Cadillac Tax impacts specific employers. Under the current thresholds, estimates show 30% or more of employers could face some exposure to the tax by 2020. But until recommendations on the adjustments are made and adopted, it is impossible to predict what impact those adjustments will have on employers. Nonetheless, it is important for employers to know where they stand now and to look at ways they can reduce their tax exposure in the future. The delay until 2020 doesn’t mean the Cadillac Tax can be ignored for now. Instead, it is an opportunity to build a strategy with extra time to implement it.
Best Practice: Start assessing your plans and determine their costs in relation to the current Cadillac Tax thresholds. If necessary, develop a multi-year strategy to mitigate the tax and begin communicating with your employee groups now.
About Tim Crawford
Tim is Vice President, Marketing at Keenan and he has worked in the insurance field for more than 35 years. He has been a member of the Health Care Reform Committee for the past three years and enjoys writing about technical and community issues.