Cadillac Tax On Benefit Plans Delayed Another Two Years

The short-term spending bill signed by President Trump on Monday, January 22nd, ended the government shutdown, and also included another delay in the effective date of the Affordable Care Act’s excise tax on high cost employer-sponsored coverage, commonly referred to as the “Cadillac tax.”

The Cadillac tax, named of course after the iconic luxury automobile, is a 40% excise tax imposed on the value of certain excess benefits offered under employer provided health insurance policies.  Originally the tax was non-deductible.  In the 2016 spending bill Congress changed that and made the tax deductible.

Stuck in Neutral

The Cadillac tax was first scheduled to take effect this year.  However, in 2016 Congress passed an omnibus spending bill which included a 2-year delay of the tax, pushing out the effective date to 2020.  Now, this most recent bill tacks on another two years to push the effective date to 2022.

The Cadillac tax was intended to discourage employers from offering high-cost health plans to employees because they would need to trim their spending on plans to get under the excise-tax cap.  Economists have argued that because income taxes are not paid on health insurance benefits, health care prices have risen because employers pay more for health care than they would if these benefits were taxable at certain levels.  It was hoped that with reduced spending on health care plans, employers might reallocate that spending to increase employee wages.

Many industry groups have supported outright repeal of the tax, arguing that the tax will result in shifting of steadily increasing healthcare costs to employees. Many labor unions also have sought repeal since theirs are among the high cost plans that will be affected by the tax.

Bottom Line

With implementation now delayed until 2022, and with the ever-shifting political winds, it is anybody’s guess as to whether this tax will ever actually take effect.