President Obama signed into law the Consolidated Appropriations Act on December 18, 2015, which among other things delayed the effective date of the Cadillac tax on high-cost employer sponsored health plans from 2018 to 2020.
The Affordable Care Act (ACA) imposed a 40 percent excise tax (commonly known as the Cadillac tax) on employer sponsored “excess benefits.” For purposes of determining “excess benefits,” all employer sponsored health plans must be aggregated, including not only insured and self-insured group health plans but also most wellness programs, FSAs, employer and employee pre-tax contributions to HSAs, HRAs, on-site medical clinics, executive physical programs, retiree health coverage, and other specified types of coverage. If the aggregated coverage exceeds specified thresholds, Cadillac taxes must be paid on the amount that exceeds the thresholds. The thresholds are currently $10,200 for self-only coverage and $27,500 for family coverage. These thresholds will be updated before the tax takes effect in 2020 and indexed for inflation in the years that follow.
Another important change is that the Consolidated Appropriations Act made the Cadillac taxes when paid deductible for federal tax purposes. Before, the taxes were not deductible.
Although the delay and making the Cadillac tax deductible are great news, the Cadillac tax continues to be of considerable concern in that some employers may decide to reduce the value of the health benefits they currently provide employees in order to avoid paying the taxes. Making the taxes deductible could help mitigate some of this concern, however.