Affordable Care Act Cadillac Tax Delayed to 2020
On Friday, December 18, 2015, President Obama signed a $1.1 trillion omnibus spending bill, which included a provision to delay the Affordable Care Act’s (ACA) “Cadillac tax” on high-cost employer sponsored health plans. The Cadillac tax that was originally scheduled to take effect in 2013 and then delayed to 2018, has now been pushed back again to 2020. The bill also makes the tax a deductible expense. Several news outlets and political commentators believe this delay in the provision is a step towards a full repeal of the tax. The Cadillac tax would impose a 40% excise tax on the portion of health plan premiums that exceed certain thresholds ($10,200 for single coverage and $27,000 for family coverage) and has forced employers to drift towards High Deductible Health Plans (HDHPs). This trend also brought with it the increased usage of consumer driven spending accounts, such as Health Savings Accounts (HSAs), in addition to Flexible Spending Accounts (FSAs). However, in February 2015, the IRS released Notice 2015-17 stating that employer pre-tax contributions to consumer driven spending accounts would be included in the calculation of the above noted thresholds. This guidance led plan sponsors and their advisors to begin rethinking their long term strategy of coupling HDHP’s with spending accounts. The delay in enforcement of the Cadillac Tax represents significant relief to plan sponsors scrambling to bring their plan costs down and those looking to alternatives. Although a full repeal could be in the future, Nyhart suggests continued diligence in preparing for the tax in 2020. While there is now no immediate need to prepare for the tax, the 2-year delay gives employers time to properly assess how their health insurance plans stand under the Cadillac tax cost limits, and, if necessary, revamp them before 2020. Even though this part of the ACA is being delayed, the rest of the healthcare law is still in effect–especially new compliance and reporting requirements starting January 2016. Please contact your Nyhart actuaries or consultants for more information.