By: Philip Qualo, J.D.
The U.S. House of Representatives recently voted to abolish the so-called "Cadillac Tax" on employer-sponsored, high-value health plans, which was scheduled to take effect in 2022. If the Senate passes the measure, and the president signs it into law, the threat employers have faced from the tax will finally be over. The House passed H.R. 748, the Middle Class Health Benefits Tax Repeal Act, with an overwhelming bipartisan vote of 419 to 6. The Senate will now decide whether to vote on the measure.
The Cadillac Tax, part of the Affordable Care Act (ACA) passed in 2010, is a 40 percent excise tax on the cost of employer health plans in excess of annual cost thresholds. The tax, originally intended to take effect in 2018, was intended to help generate tax revenue to help fund ACA subsidies for marketplace plans. Due to heavy opposition, the effective date of the Cadillac Tax has been delayed twice by Congress and had now been scheduled to go into effect in 2022. It is calculated based on: the costs of plan premiums (regardless of whether employer- or employee-paid); employer contributions and employee-elected payroll deductions to health savings accounts and flexible spending accounts; employer contributions to health reimbursement arrangements; the cost of group wellness programs; the value of coverage in onsite medical clinics; and certain other health benefits. The Cadillac Tax would have applied to both fully-insured and self-funded health plans.
According to a new analysis by the nonprofit Kaiser Family Foundation, the tax would have affected 1 in 5 employers offering health benefits in 2022 unless employers reduced the value of their health plans. As currently projected, if the average plan cost to cover employees and dependents was more than $11,200 for individual coverage and $30,150 for family coverage, employers would have had to pay the tax on plan costs for each covered person above those threshold amounts.
Employers and advocacy groups have vehemently opposed the Cadillac Tax, noting that although this tax was intended to only hit Americans with “gold-plated” plans, modest plans covering low and moderate-income working families were projected to trigger the tax. The Alliance to Fight the 40 has argued that this tax would have disproportionately taxed the health plans of women, seniors, working middleclass families, the sick, and the disabled. They also noted that that small businesses that already struggle to offer health care coverage would have also been heavily penalized.
We will continue to provide updates on the Cadillac Tax as the bill makes its way through the Senate.