It’s old news now that the Cadillac tax provision of the ACA was delayed until 2020, as part of a budget passed by Congress in late 2015. Employers affected by the tax were likely thrilled with the prospect of at least two more years before needing to comply with the provision or face hefty taxes.
There is a lot of speculation now that the provision will be repealed or at least modified; a different president will be in office by 2020 and there is bipartisan dislike for the tax. For that reason, many employers may be tempted to assume the tax will never take effect, or avoid making plan changes hoping for a repeal or another delay. As their broker, you should advise against this strategy—we’ll tell you why in this blog.
What is the Cadillac tax?
The Cadillac tax is a tax on high-cost health care plans. Once implemented, employers will be taxed 40% on health plans that exceed the high-cost limits specified by the ACA (currently $10,200 for individuals and $27,000 for families). The tax would only apply to the amount above the threshold.
The intention of this ACA provision was to keep overall health insurance plan costs down by discouraging employers from offering such high-cost plans. It was initially set to go into effect in 2018 before the recent delay, and has been one of the most contested provisions of the Affordable Care Act.
When the tax was delayed in late 2015, it was also made tax-deductible, and was changed to have its thresholds indexed starting in 2018.
Why employers shouldn’t ignore it
2020 seems like a long way away, and as mentioned before, it can be tempting to assume the tax will be repealed completely based on today’s political climate. However, brokers should advise their clients to instead do their due diligence and plan as if the tax was going into effect. Here’s why:
- Large and/or complex employers need longer to plan sweeping plan changes, and should take the extra time to plan ahead for 2020—particularly since these employers are at risk for the largest potential taxes. This is a good time to sit down with those clients and do a three-year benefits planning session to plan ahead.
- The extra time gives employers time to phase in lower cost plans through wellness initiatives, preventive care and employee education. If employers start a major focus on these areas now, they could organically reduce costs over the next few years without having to slash benefits all at once.
- There is no way to know what the political climate will be in 2020; it could be much different than today. Or, the provision could be used as a bargaining chip for something else and still be enacted despite its unpopularity.
- The government has a habit of waiting until the last minute to act. If employers wait for the government to delay the tax again, and they don’t, it could be too late to make the appropriate plan changes to avoid paying a penalty.
The Affordable Care Act has been around for six years, but it still offers brokers significant opportunity to provide additional service and support for their clients. To read more about how to guide your clients through the latest ACA changes, read the ebook, Support Clients Throughout ACA Delays.