Update: Cadillac Tax

July 24th, 2019 by Thomas Harte

The House of Representatives voted last week with overwhelming support with a vote of 419 to 6 to pass H.R. 748 to fully repeal the ACA’s Cadillac/excise Tax. Next, it will next be considered by the Senate, where a companion bill, S. 684, has 42 bipartisan co-sponsors.  According to the Congressional Budget Office (CBO), the anticipated full repeal of this tax would cost the United States Treasury $197 billion over 10 years.

If not fully repealed, the Cadillac Tax would impose a 40% excise tax on the amount of the aggregate monthly premium of each primary insured individual that exceeds the year’s applicable dollar limit. While designed as a disincentive for employers offering the most benefit-rich plans, in reality the tax will impact a majority of plans, including those that aren’t benefit-rich and were not the intended targets of this provision. Many employers may be deterred from offering coverage, including HSA-compatible plans, wellness programs or onsite clinics.

The Cadillac tax was originally added to the Internal Revenue Code by the Affordable Care Act (ACA) as a permanent, annual tax. The tax would apply to health insurance costs that are deducted from an employee’s pre-tax salary. It could also include employer contributions, but not deductibles, coinsurance and copays. For every health insurance plan with premiums exceeding $10,200 annually for an individual and $27,500 annually for families, employers will pay a tax of 40 percent on the excess costs. For example, a family plan that costs $36,000 per year in premiums would mean 40 percent of $8,500, or $3,400 as an excise tax.

Many types of coverage would be subject to the tax:

• Insured and self-insured group health plans, including behavioral (mental health) benefits, prescription drug coverage and wellness programs
• Health Flexible Spending Accounts (FSA), Health Reimbursement Accounts (HRA) and Health Savings Accounts (HSA), including both employer and employee pre-tax contributions
• Pretax contributions to Archer Medical Savings Accounts (MSA)
• On-site medical clinics that provide more than minimal care
• Executive physical programs
• Pretax coverage for a specific disease or illness
• Pretax coverage for hospital indemnity or any other type of fixed indemnity coverage
• Government-sponsored plans (federal, state and local)
• Retiree coverage
• Taft-Hartley multiemployer plans

For more information on legislative actions in Congress or your State legislative body, please contact your account manager at Landmark Benefits.

Landmark Benefits, Inc. does not provide tax, legal or accounting advice. This material has been prepared for informational purposes only, and is not intended to provide, and should not be relied on for, tax, legal or accounting advice. You should consult your own tax, legal and accounting advisor.