Two-Year Delay for 'Cadillac Tax' Included in Stopgap Funding Bill

Tax would raise employees' co-pays and deductibles, SHRM warns

Stephen Miller, CEBS By Stephen Miller, CEBS January 22, 2018

Update: On Jan. 22, 2018, Congress passed and President Donald Trump signed into law a two-year delay on the Affordable Care Act's 40 percent excise tax on high-value health care plans. See the SHRM Online article Health Care 'Cadillac Tax' Delayed Until 2022.

A two-year delay on the 40-percent excise tax on high-value health plans is part of the measure being debated in the U.S. Senate to restore funding to the federal government. The provision to postpone the "Cadillac tax" from taking effect until 2022, instead of in 2020, has yielded bipartisan, bicameral support and is backed by the Society for Human Resource Management (SHRM).

Legislation to fund the federal government through 2018 has been held up by negotiations on immigration policy, causing the government to shut down nonessential services as of Jan. 20.

The House of Representatives passed a stopgap funding bill, or continuing resolution, with the Cadillac tax delay on Jan. 18. Although the Senate's failure to approve the funding measure led to the partial government shutdown, advocates still hope to pass the Cadillac tax delay as part of legislation to restore government funding.

Looming Levy

Despite significant lobbying by employer advocates, Congress did not include a repeal of the Affordable Care Act's (ACA's) 40 percent excise tax on high-value plans in the tax reform bill signed into law last December, leaving the tax scheduled to take effect Jan. 1, 2020.

"HR professionals and employers are already restructuring their health care benefit offerings to avoid the tax," wrote Johnny C. Taylor, Jr., SHRM-SCP, president and CEO of SHRM, in a Jan. 19 letter to Senate Majority Leader Mitch McConnell (R-Ky.) and Minority Leader Charles Schumer (D-N.Y.).

"As 2020 approaches, more employers will closely scrutinize their health benefit offerings and will make the necessary changes to avoid the tax," Taylor noted. "Many employers may be forced to cut benefits, alter wellness and chronic care prevention programs, and reduce innovative new benefit offerings."

While the excise tax is only intended to target high-value plans, "modest plans will also be impacted," Taylor pointed out. "This means millions of Americans and their families could face higher co-pays and deductibles, causing some to decline employer-provided health care."

The Cadillac tax "must be dealt with well in advance of implementation time, otherwise employees could see further changes in their benefit options," Taylor said.

[SHRM members-only toolkit: Complying with and Leveraging the Affordable Care Act]

Time Is Running Out

"Employers are literally running out of time to develop and execute new plans that will ensure their plans' values will not trip the Cadillac tax," said benefits attorney Bruce Davis, principal at law firm Findley Davis in Toledo, Ohio. For instance, "Employers with collective bargaining agreements that will not expire until later in 2018 or 2019 will face challenges in negotiating and implementing changes in their health plans by Jan. 1, 2020, to keep their plans' gross costs from triggering the Cadillac tax."

The stopgap funding bill also addresses other tax provisions that were part of the ACA, such as a two-year delay of the medical device tax—a 2.3 percent tax on the sale of certain devices that took effect in 2018—until 2020. In addition, the bill would extend the Children's Health Insurance Program (CHIP) for six additional years.

Related SHRM Article:

'Cadillac Tax' Will Hit Majority of Employer Plans, SHRM Online Employment Law, October 2017

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