On December 18, 2015, Congress passed a federal budget bill for 2016, which included several notable changes to the Affordable Care Act (ACA). President Obama, upon signing the budget bill, made the changes to the ACA effective immediately.
The first change was a two-year delay in implementation of the so-called “Cadillac Tax.” The Cadillac Tax is a 40% nondeductible excise tax on health plans. The tax was scheduled to begin in 2018 for health plans whose premiums exceeded $10,200 for single and $27,500 for family coverage. The tax is now proposed to begin in 2020. The budget bill passed also removes the provision that prohibited employers from deducting the cost of the tax as a business expense.
This is good news for employers. The Kaiser Family Foundation, in August 2015, predicted that 26% of employers would be assessed the Cadillac Tax on at least one of their health insurance plans if no changes to current plans were made. The question remains as to whether this tax will be repealed before it can go into effect in 2020.
The budget bill also suspended two types of taxes used to pay for the ACA. First, the Health Insurance Provider Fee, commonly known as the Health Insurance Tax (HIT), will be suspended for one year, calendar year 2017. HIT placed a tax on health insurance providers’ annual net premiums. The cost of this tax is routinely passed on to employers in annual rate increases. The tax will begin being collected again in calendar year 2018.
The second tax suspended was the 2.3% excise tax on medical devices, which will be discontinued for two years, calendar years 2016 and 2017. This tax was intended to help fund the expansion of health insurance by taxing an industry which financially benefited from the insurance expansion. In other words, the expansion of health coverage would increase the demand for medical devices, which would offset the effect of the tax.
Although the Cadillac Tax has been delayed, employers should continue to examine their health insurance offerings and decide if they need to make changes to their benefit offerings in order to avoid the tax when it is implemented in 2020.