Employers will have two more years in which to respond to an Affordable Care Act tax on high-cost health plans, which was due to take effect in 2018. On Dec. 18, President Obama signed an omnibus spending package that includes a two-year delay of the Cadillac tax and also reversed the tax’s non-deductible status.
The omnibus package, which provides funding to the federal government until Sept. 30, 2016, was approved by the Senate in a 65-to-33 vote. The House of Representatives approved the package by a vote of 316 to 113.
The delay means the tax will take effect in 2020 rather than 2018. (Note: This is the second implementation delay of this tax; the statute originally required Cadillac tax payments to start in 2017.)
The spending law also makes amounts paid by employers under Cadillac tax provisions deductible as business expenses, in conformity with the general rule for excise taxes, and that further reduces the burden on employers paying the tax. The change in Cadillac tax payments as taxable expenses is permanent, and that is helpful to employers, James A. Klein, president of the American Benefits Council told the Guide.
The spending law also provides for a study on the suitability of the Blue Cross/Blue Shield standard benefit option under the Federal Employees Health Benefits Plan as the proper benchmark for the threshold measurement of the Cadillac tax.
Employer responses to the tax — which included offering fewer health benefits and offering less valuable health benefits — can be delayed for two years, experts said.
“This is certainly a positive development for employers; they can put off planning for the tax, and won’t have to water down their health plans, and they won’t have to reduce benefits now,” attorney Stacy Barrow, Marathas Barrow & Weatherhead LLP in Boston told the Guide. Employers have begun reducing health benefits now to avoid a drastic cut-off when the tax actually takes effect, he said.
House Democratic leader Nancy Pelosi and Senate Minority Leader Harry Reid split from President Obama and his economic team around Dec. 1, and began talking with Republicans about delaying or repealing the tax, according to The Hill newspaper.
On Dec. 3, a stand-alone bill completely repealing the Cadillac tax passed the Senate in a 90-10 vote.
A Year Without the Insurer’s Fee
The spending law also provides for a one-year moratorium on the annual fee on the annual excise tax imposed on health insurers for calendar year 2017, thereby eliminating $13.9 billion that would have been collected from insurers and probably passed on to consumers, including employers. The aggregate annual fee was $8.0 billion for calendar year 2014 and $11.3 billion for calendar years 2015 and 2016, which has or will be collected. The elimination of the fee for 2017 is a relief for consumers and employers who will experience less abrupt premium hikes from what they otherwise would see in 2017.
A Step on the Way to Full Repeal?
The two-year delay of the tax is a “down payment” toward the ultimate goal of full repeal, Klein said. He also remarked that the coalition opposing the tax includes patient advocates, private- and public-sector employers, unions and non-profit groups.
The delay is “a welcome breather,” but employers ultimately must implement the same restrictions they faced to avoid the tax as they had before, when it hits them in 2020 instead of in 2018, Klein said.
Is the Revenue Real or Theoretical?
Until Congress comes up with another means of raising revenue, full repeal of the Cadillac tax is unlikely, Barrow said, because all of the guaranteed and expanded coverage in the ACA still has to be paid for. “For this to lead to repeal or additional delay, we’ll have to see other revenue raising measures … otherwise it will probably remain in place,” he said.
Klein agreed: “Ultimately the government will have to pay for everything in the ACA with savings and revenue sources that are real, and not made up. There’s a risk of tax increases, and that they’ll act as if they gained revenue through erroneous assumptions. So it is incumbent on us who understand how the taxes affect employers, to educate policy makers about which of their assumptions are accurate and which are mistaken.”
Note: According to the Congressional Budget Office, and the drafters of the original law, only about 20 percent of Cadillac tax revenue will be raised directly from the tax; the remainder will be raised as employers shift funds to employees in salary increases or keep it as revenue, both of which can be taxed by the IRS.
For more information on this tax, see Section 710 of The New Health Care Reform Law: What Employers Need to Know.