“The U.S. House of Representatives voted on July 17 to abolish the so-called “Cadillac tax” on employer-sponsored high-value health plans, set 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 would disappear.
The House passed H.R. 748, the Middle Class Health Benefits Tax Repeal Act, by an overwhelming, bipartisan vote of 419 to 6. The Senate will now decide whether to vote on the measure. The Senate companion bill, S. 684, introduced in March by Sens. Martin Heinrich, D-N.M., and Mike Rounds, R-S.D., currently has 42 co-sponsors.
“As 2022 approaches, more employers will have to closely scrutinize their health benefit offerings and make the necessary changes to avoid the tax, which may include reducing benefits and/or altering wellness and chronic care prevention programs,” wrote Johnny C. Taylor, Jr., SHRM-SCP, president and CEO of the Society for Human Resource Management (SHRM) in a July 12 letter to Congress.
While the excise tax was intended to target high-value plans, “modest plans will also be impacted, meaning millions of Americans and their families could face higher co-pays and deductibles, causing some to decline employer-provided health care,” Taylor noted. “The Cadillac tax must be dealt with well in advance of its proposed implementation date, otherwise employees could see further changes in their benefit options,” he explained.
Employer-sponsored insurance is the largest source of health coverage for Americans, covering more than 181 million people.
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. It was intended to help generate tax revenue to help fund the ACA’s subsidies for marketplace plans.
The tax, originally intended to take effect in 2018, was delayed twice by Congress and is now scheduled to go into effect in 2022. It is calculated based on: the costs of plan premiums (whether employer- or employee-paid and whether the plan is fully insured or self-funded); 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.
As currently projected: If the average plan cost to cover employees and dependentsis more than $11,200 for individual coverage and $30,150 for family coverage, employers would pay the tax on plan costs for each covered person above these threshold amounts. The thresholds would be indexed to general inflation, not medical inflation, which is consistently much higher. Consequently, over the years, an increasing number of plans would be affected by the tax.
[SHRM members-only toolkit: Complying with and Leveraging the Affordable Care Act]
Tax Would Affect 1 in 5 Employers
According to a new analysis by the nonprofit Kaiser Family Foundation, the tax would affect 1 in 5 employers offering health benefits in 2022 unless employers reduce the value of their health plans. A recent survey of nearly 450 large U.S. employers by the nonprofit National Business Group on Health found that nearly 3 in 4 would have at least one plan that triggers the excise tax in 2022.
Now that the measure has passed the House, Taylor encouraged swift action in the Senate.
Last month, SHRM was among 665 organizations in the Alliance to Fight the 40 that urged Congress to repeal the tax “before working Americans and their families, who are already stretched too thin, are hit with this onerous tax increase.” The alliance includes businesses, nonprofits, chambers of commerce, insurers, brokers, unions and patient advocacy groups.
“The House action to repeal the Cadillac tax is welcome news for both employers and employees,” said Brian Marcotte, president and CEO of the National Business Group on Health. “Any tax that raises the cost of health benefits will harm the millions of working Americans and their families who rely on and value employer-sponsored health coverage.”
Harrison Stone, general counsel at benefits administrator ConnectYourCare, noted the near unanimity in the vote. “What used to be a partisan issue has become consensus opinion in Washington,” he observed.
The Cadillac tax also has supporters. The tax “has a strong policy rationale: It will help slow health care cost growth” and would “discourage employers and employees from buying unusually high-cost health coverage that promotes the excess use of health care,” wrote Paul N. Van de Water, a senior fellow at the nonprofit Center for Budget and Policy Priorities.