By Lauren Bikoff, MLS
Under a new spending bill, the ACA’s Cadillac tax will not take effect.
After President Trump signed the $1.4 trillion spending bill on December 20, 2019, a broad range of stakeholders celebrated the long-awaited repeal of the so-called "Cadillac tax." Under the new law, the Patient Protection and Affordable Care Act’s (ACA) excise tax on high-cost health plans, which was scheduled to go into effect January 1, 2022, will never take effect.
The new law, the Further Consolidated Appropriations Act, 2020, contains several other provisions impacting health and welfare plans. These include the repeal of the medical device tax, the repeal of the health insurance providers fee, a 10-year extension of annual employer fees to fund the Patient-Centered Outcomes Research Institute (PCORI), and an extension of the employer credit for paid family and medical leave.
Cadillac tax. The unpopular Cadillac tax was originally designed to curtail the preferred treatment of employer-sponsored plans and reduce excess health spending. The tax would have required plan sponsors and insurers to pay a 40 percent excise tax on the excess cost of employer-sponsored health coverage for employees—amounts over $11,100 for employee-only and $29,750 for family coverage, adjusted for inflation annually. The Cadillac tax had been delayed several times, most recently to 2022. A recent Kaiser Family Foundation study had found that the Cadillac tax would have affected 21 percent of employers when it was scheduled to take effect in 2022.
The excise tax on high-cost health plans was designed to help pay for the ACA. The Congressional Budget Office (CBO) has projected that the repeal of the Cadillac tax will cost nearly $200 billion over 10 years. However, many organizations lobbied for several years to have Congress repeal the Cadillac tax. These groups include the Employers Council for Flexible Compensation (ECFC) and the ERISA Industry Committee.
"Repeal of the Cadillac Tax was one of our highest legislative priorities," said Martin Trussell, ECFC executive director. "We want to thank Congress and the Administration for recognizing the deleterious effect that the Cadillac Tax would have on employer sponsorship of health care plans, especially consumer-directed health plans, and for repealing the tax."
According to Annette Guarisco Fildes, president and CEO of ERIC, "America’s large employers, and the tens of millions of Americans with employer-sponsored health coverage, can finally breathe easy, thanks to [the] repeal of the Cadillac tax. The tax was never going to generate massive amounts of money as the budget scorekeepers assumed. Instead, the existence of the tax forced employers to scale back their benefit offerings, and increasingly shift rising health care costs to employees as the only way to avoid the tax. Now, employers will be able focus on the future with certainty, while they continue to champion innovation in the health care system to bring down costs and improve health care quality, in order to provide the high-value benefits employees and their families have come to rely on."
Other provisions. The new law contains several other provisions impacting health and welfare plans. These include:
- Medical device tax repealed. The 2.3 percent excise tax on the value of medical devices sold domestically went into effect in 2013 but was suspended by Congress twice, and was not in effect during the period beginning on January 1, 2016 through December 31, 2019. Earlier estimates from the CBO said repeal of the medical device tax would cost about $24 billion over a decade, while the IRS estimated earlier this year that repeal of the health insurance tax would amount to revenue losses of $15.5 billion just in 2020.
- Health insurance providers fee repealed. The ACA annual fee on health insurance providers also was repealed. The fee imposed a fee on each covered entity engaged in the business of providing health insurance for United States health risks. The fee was divided among health insurers based on their market share and their premiums written. The fee was effective beginning in 2015 but was under a moratorium for 2017 and 2019. CBO estimates that the repeal of the fee will cost almost $151 billion over 10 years.
- PCORI fees extended. The PCORI fee on health insurance policies and self-insured health plans was set to expire for plan years ending after September 30, 2019, but now has been extended for another 10 years. The law also makes several program changes sought by employers.
- Employer credit for paid family and medical leave. The law provides a one-year extension of the federal tax credit for employers providing paid family and medical leave through 2020, which was originally enacted as a two-year pilot program under the Tax Cuts and Jobs Act of 2017. CBO projects the extension of the credit will cost $2.2 billion over 10 years.
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