Capitol Hill Update

Legislative Proposals to Repeal the ACA’s “Cadillac Tax” Introduced

May 8, 2015
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Starting in 2018, a provision of the Affordable Care Act (ACA) will impose an excise tax nicknamed the “Cadillac Tax” on employers whose health care plans cost more than $10,200 a year for individuals and $27,500 a year for families. Under the ACA, those plans are set to be taxed at 40 percent of the cost above those limits. Data shows that many employers will likely be subject to the tax. In fact, 33 percent of SHRM members’ organizations report that the costs of their plans will likely trigger the excise tax.

Lawmakers in the U.S. House of Representatives are concerned that the anticipated excise tax will have unintended consequences on employers and employees alike. Last week, Representative Joe Courtney (D-Conn.) introduced a new legislative proposal, H.R. 2050, to repeal the excise tax on high cost, employer-sponsored health coverage. The bill has already garnered the bipartisan support of 69 House members (66 Democrats and 3 Republicans). Courtney’s bill is the second proposal introduced this year to repeal the excise tax. Earlier this year, on February 11, Representative Frank Guinta (R-N.H.) introduced a similar proposal (H.R. 879) seeking to repeal the excise tax on health plans. That proposal currently has 27 Republican co-sponsors.

SHRM supports repeal of the excise tax and sent a letter of support to Representative Guinta following his introduction of H.R. 879. In addition, last month SHRM Georgia State Council Director Sally Roberts, MBA, SHRM-SCP, testified on behalf of SHRM before the U.S. House Education and the Workforce Subcommittee on Health, Employment, Labor and Pensions on the challenges employers and HR professionals are facing in implementing the ACA, including the threat of the excise tax.

The Obama administration is expected to push back against proposals to repeal the excise tax because the levy was a key ingredient of the ACA when it was passed Congress in 2010, in that it was expected to help offset the cost of health care reform to the tune of $80 billion over 10 years.

In addition to the potential levy of a tax on employer-sponsored plans, another concern is that the anticipated tax levy will degrade worker benefits by leading employers to choose less comprehensive plans, which will mean that individuals and families will incur more out-of-pocket health care costs.

Employers and HR professionals are already restructuring their health care benefit offerings to avoid the tax. According to a SHRM Research survey released in March, 21 percent of SHRM members expect to decrease their organization’s health benefit offerings in an attempt to avoid the tax, and 7 percent indicated their organization will reduce its non-health benefit offerings (such as financial benefits and compensation or retirement savings and planning benefits) for 2015.

As Congress begins to consider proposals to repeal the excise tax, the Internal Revenue Service (IRS) recently released initial guidance (Notice 2015-16) on the impending excise tax. The IRS notice addresses the definition of applicable coverage, how to determine its cost and how the dollar limits apply. The IRS is requesting comments/feedback from interested parties on this issue by May 15. SHRM is currently drafting comments to submit to the IRS on the implications of the excise tax and has been actively advocating on this issue on Capitol Hill. SHRM is a member of a coalition of Washington, D.C.-based organizations leading the effort to repeal the excise tax.

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