What: On January 22, 2018, Congress passed and President Trump signed into law a two-year delay on the Affordable Care Act's 40 percent excise tax on high-cost employer-sponsored health coverage known as the Cadillac tax.
When: The Cadillac tax, was previously set to become effective in 2020. With the extension, this has been delayed until 2022.
Who: The Cadillac tax will generally apply to the monthly cost of an employee's employer-sponsored health coverage that exceeds a threshold amount specified in the law. Generally, for insured coverage, the insurer is responsible for paying the tax. For self-insured coverage, the employer will be responsible for the tax.
Under the Affordable Care Act, employer-sponsored health benefits whose value exceeds specified thresholds would be subjected to an excise tax starting in 2022. The thresholds will be indexed to growth in the consumer price index in subsequent years. Thresholds will be higher for plans with more-expensive than-average demographics, retirees ages 55 to 64, and workers in high-risk professions. The Cadillac tax will apply not only to employers' and employees' contributions to health insurance premiums, but also to health saving account, health reimbursement arrangement, and medical flexible spending account contributions.
With the new delay, the excise tax will be imposed beginning in 2022 on the cost of health plan coverage that is more than these pre-determined annual limits:
- $10,200 for individual coverage ($11,850 for qualified retirees and those in high-risk professions).
- $27,500 for family coverage ($30,950 for qualified retirees and those in high-risk professions).
These limits are indexed to the Consumer Price Index and may be increased for inflation. While the tax was originally not deductible as a business expense, the December 2015 changes make it tax deductible for employers who pay it.
The purpose of the Cadillac tax is threefold:
- to address cost of the employer sponsored insurance,
- to help finance the Affordable Care Act (ACA), and
- to reduce employer incentive to overspend on health plans and employee incentive to overuse services encouraged by these high-cost plans.