One of the most widely disliked provisions of the 2010 Affordable Care Act is the 40 percent excise tax it imposed on health insurance plans costing more than $10,200 for individuals or $27,500 for families. The so-called “Cadillac tax” was originally set to become effective this year, but its implementation date was later pushed back to 2020. A Republican plan to repeal and replace the ACA, which ultimately failed in Congress last year, had proposed to delay the tax until 2025, although employers have been pushing for its total repeal.
The major tax reform bill passed by Congress last month did not touch the Cadillac tax, but a resolution to restore funding to the federal government this week after legislative gridlock led to a government shutdown included a further delay in its implementation, SHRM reports:
Both political parties supported the provision to postpone the so-called Cadillac tax from taking effect until 2022, instead of in 2020—as did the Society for Human Resource Management (SHRM). The stopgap funding bill also amends other tax provisions that were part of the Affordable Care Act, such delaying the medical device tax—a 2.3 percent tax on the sale of certain devices—until 2020. …
Although the Republican Party’s new plan to replace the Affordable Care Act faces an uncertain future given its many critics, its contents provide signs of how an eventual Republican replacement plan may affect employer-sponsored health insurance. Two particular changes proposed in the Republican plan stand to have a significant impact on employers:
- “Cadillac tax” delayed until 2025: While some observers had expected the GOP to eliminate the excise tax imposed by the ACA on high-cost employer-provided health plans, the proposed delay in the implementation date of this tax from 2020 to 2025 will give employers some relief from an imminent increase in their tax burden and allow them to avoid making major, sudden changes to their benefits offerings
- Expansion of the allowable size of HSAs and FSAs: The plan increases the allowable size of health savings accounts that can be coupled with high-deductible insurance plans to $6,550 for an individual or $13,100 for a family, among other measures to encourage greater use of these accounts. The plan would also allow flexible spending accounts to cover over-the-counter prescription drugs and let HSA holders use them to pay for medical expenses retroactively.
Another delay in the implementation of the Cadillac tax is welcome news to employers worried about the immediate effect it would have on benefits plan design. However, organizations will still remain concerned about the Cadillac tax unless it is fully repealed: In CEB’s 2016 Quick Poll on Medical Plan Trends (accessible here to CEB Total Rewards Leadership Council members), 40 percent of organizations surveyed said they were still concerned about the Cadillac tax after its implementation date was delayed from 2018 to 2020.
Last week, the New York Times‘ Reed Abelson checked in on whether the Affordable Care Act was driving employers out of the health care market and leaving employees to fend for themselves, as critics of the law had feared it would. As it turns out, however, the dynamics of the employer-based health insurance market have not fundamentally changed, at least not yet:
Most companies, and particularly large employers, that offered coverage before the law have stayed committed to providing health insurance. As it turns out, health care remains an important recruitment and retention tool as the labor market has tightened in recent years. Desirable employees still expect health benefits, and companies are responding, new analyses of federal data show. …
About 155 million Americans have employer-based health insurance coverage in 2016, according to an analysis released by the Congressional Budget Office last month. The number will fall to 152 million people in 2019, the C.B.O. estimates, but will remain stable through 2026. Slightly more than half of people under 65 will be enrolled in employment-based coverage.
Our research backs this up: In late 2015, only 2 percent of employers participating in a CEB benchmarking study said they had stopped using the traditional model of employer-sponsored insurance. That tiny group mostly moved to private exchange models, which meant the employers were still providing subsidies for health care, but through a different mechanism. Additionally, fewer than one in five employers in that 2015 survey indicated that they would consider dropping coverage for employees in the next three years–and that was when the “Cadillac Tax” on high-cost plans still loomed on the horizon for 2018. Today, with that onerous tax delayed by two years and looking less likely to ever come into effect, even fewer employers seem inclined to stop providing health insurance. This is particularly true for large employers.
The Affordable Care Act’s “Cadillac Tax,” scheduled to go into effect in 2018, is a 40 percent tax on health insurance plans costing more than $10,200 for individuals or $27,500 for families. While the tax was advertised as targeting only deluxe benefit plans at cash-flush corporations, Katie Kuehner-Hebert at CFO reports on a new survey that says it is likely to affect most employers:
In a survey released Wednesday, United Benefit Advisors said the tax could affect 74% of employers by 2022, with even the lowest quality “bronze-level” plans on the ACA exchanges at risk of triggering the levy. “When the law was created, it was assumed that only three percent of plans would trigger the Cadillac tax, and it was marketed as a tax on ‘the rich benefits of executives,’” UBA chief executive Les McPhearson said in a news release. “The reality is that this tax will weigh heavily on a majority of American businesses that can’t afford it and will have to make severe cuts to stay above water.” Using a 6% rate or “trend” increase, compounded each year, UBA found that by 2018, 30% of employers will be subject to the Cadillac tax; by 2020, 50%; and by 2022 the tax will hit 73.79% of employers.