An early Christmas gift for Employers and Unions - Congress delays Implementation of the ACA’s “Cadillac Tax”

By BrownWinick Employment Law Practice Group

On December 18, 2015, Congress passed and the President signed $1.15 trillion fiscal year 2016 appropriations omnibus bill into law, funding the government through September 30, 2016. The bill also included several policy riders related to the Affordable Care Act (ACA) which will affect how organized labor and Employers approach collective bargaining for multi-year agreements this year and next.

First, the 2016 appropriations omnibus bill provides for a two-year delay of the ACA’s, 40 percent excise tax on high-cost employer-sponsored health plans, also known as the “Cadillac Tax.” The delay changes the effective date from 2018 to 2020. The 2016 bill also allows plan sponsors to treat any “Cadillac tax” payment as a deductible business expense.  Under the original provision of the Affordable Care Act (ACA), the “Cadillac tax” was not deductible. 

The legislation also suspends temporarily both of the other ACA taxes, which already have begun. First, it delays the 2.3 percent excise tax on medical devices for two years and next suspends the ACA’s annual tax on insurers (which began in 2014) for one year in 2017.

Some organized labor groups have opposed and seek a repeal of the tax because they collectively bargained for workers to receive more compensation through health benefits instead of higher wages. They argue the likely end-result of the “Cadillac tax” is that either Employers will offer lower-cost policies to employees or they will pass along the increased cost directly to the employee. Either way, out-of-pocket expenses will increase significantly for the household, given that lower cost policies tend to have higher deductibles, which ultimately lower employees’ total compensation. Tax payer watchdog groups also oppose the “Cadillac tax” as it impacts taxpayers who pay for the healthcare benefits of government workers, teachers, firefighters and police.

By comparison, proponents of the “Cadillac tax” argue it will help to slow the growth of national health care costs by increasing the price of excess health benefits.

It is not clear whether Congress will continue to extend implementation of the “Cadillac tax” or delete it entirely.  Likely, such change will not occur until after the next presidential inauguration. Until then, plan sponsors with high value coverage and Employers negotiating multi-year collective bargaining agreements between now and 2020 should operate under the assumption that the tax will go into effect in 2020.