President Obama signed H.R. 2029, the Consolidated Appropriations Act for 2016, on December 18, 2015. Title 1, Section 101 of this Act includes a two year delay of the excise tax on high cost employer-sponsored health coverage, nicknamed the “Cadillac Tax.” The tax was scheduled to take effect January 1, 2018, but is now delayed until January 1, 2020. This postponement comes after growing pressure from both Republican and Democratic lawmakers, as well as employers, insurers, and labor unions.
The tax was intended to wane the rising cost of healthcare and would be a 40% tax on employers offering health insurance plans that exceed specified limits. The 40% tax would apply to the amount above the specified cost limit and would be a tax-deductible expense. Opponents assert it unfairly penalizes employers and union workers who negotiated generous benefits packages as a major part of their compensation plans.
Section 103 of the Act requires the Comptroller General of the United States in consultation with the National Association of Insurance Commissioners to report to the Senate and House Ways and Means Committee possible changes to the way the tax will be indexed beginning in 2020. Currently, the tax is based on the premium cost of the Blue Cross Blue Shield standard benefit option under the federal employees’ health benefits plan. The Comptroller General is expected to investigate other factors in determining what the tax may be in 2020 and thereafter. The Act explicitly references age and gender as possible benchmarks.
Congress has expressed a bipartisan eagerness to eradicate the Cadillac Tax, and the two-year delay buys it and the next president some time to determine the tax’s fate after the 2016 election. In the meantime, however, employers should take this opportunity to assess their health insurance plans to see whether they comply with the tax’s cost limits and, if necessary, develop a plan to modify plans in time for the 2020 effective date. The rest of the Affordable Care Act and its requirements remain in effect.