The monolithic Consolidated Appropriations Act of 2016, which became law December 18, changes the effective date of the Affordable Care Act’s so-called “Cadillac” tax.
A key funding mechanism of the ACA is a 40 percent excise tax imposed on the cost of employer sponsored health coverage furnished to an employee that exceeds a statutory limit. Under the ACA, this tax becomes effective in 2018. However, after an intensive lobbying effort led by business and organized labor, Congress included a provision in the Appropriations Act that delays the effective date of the excise tax to 2020. The Appropriations Act also changes the excise tax from a non-deductible expense by affected employers and insurers to a deductible expense.
The goal of the tax is to control the growth of health care spending. By eliminating the most expensive benefit plans it is thought that people will make better decisions about health care usage. Employers and unions fear that the tax will not only result in the elimination of expensive executive style plans and generous health plan coverage obtained through labor negotiations, but that employers will continue to pare back benefit offerings or increase participant cost sharing thus making health plan coverage less attractive.
Considering the postponement of the Cadillac tax to 2020 had bipartisan support, lobbying efforts will continue to try to repeal the tax in its entirety.
For more information on ACA compliance planning, please contact either Brent Gambill (937/449-5539; [email protected]) or Edie Crump (937/449-5530; [email protected]).
