The “Cadillac Tax” was created by the Affordable Care Act, and it imposes a 40% tax on the value of employer-provided health coverage above a certain dollar amount. The tax was initially scheduled to take affect this year—2018—but was delayed until 2020. Now, the Cadillac Tax is again delayed until 2022.
According to Forbes, “employers were supposed to begin paying a 40% tax on costs of health plans that are above $10,200 per individual and $27,500 for family coverage.” The 40% tax is triggered when the value of an individual’s health plan exceeds the threshold – a supposedly “high end” number for “Cadillac” plans. But, for example, a 2013 Mercer survey found that the average price of all employer-provided health plans in Florida was already approaching the threshold years before the tax is set to go into effect.
But employers have been fighting the Cadillac Tax because they want to be able to provide rich benefits to their employees without being subject to additional taxes. Because of employers fighting the Cadillac Tax, they have convinced a bipartisan group of lawmakers to delay it again until 2022.
A study by City University of New York School of Public Health found that the “Cadillac Tax” will hit the middle class the hardest; a 2014 report by consulting firm Milliman found that the tax will disproportionally affect women, older employees, and certain geographic areas; and a 2014 study by Truven Health Analytics found that the 40% tax will result in a cost increase of up to $480 per employee per year for plans that are expected to incur the tax.
The American Health Policy Institute estimated that the 40% tax “could cost 12.1 million employees an average of $1,050 in higher payroll and income taxes per year, if employers increase their taxable wages as they reduce the cost of health care benefits.”
According to Lexology, “the new two-year delay gives employers and plan sponsors more time to adjust health plan design to avoid the Cadillac Tax. However, whether the Cadillac Tax ever becomes effective is certainly in doubt, as the tax is unpopular on both sides of the aisle.”
The tax was delayed in 2015 for two years and again in 2018 for an additional two years—so we could certainly see the Cadillac Tax being delayed for a longer period of time!