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All eyes on are the U.S. Senate to see if a vote will be taken to eliminate a tax associated with the Affordable Care Act.
The tax in question is an excise tax known as the Cadillac Tax. Highly unpopular with business leaders and organized labor, the tax was to be implemented to discourage unnecessary spending on health care.
A bill passed by the House of Representatives, the Middle-Class Health Benefits Tax Repeal Act of 2019, would repeal the ACA’s Cadillac Tax provision by a vote of 416-7. The bill must now be considered by the U.S. Senate.
The Cadillac Tax is a 40% excise tax on employer plans exceeding $10,200 in premiums per year for individuals and $27,500 for families. A study by the Kaiser Family Foundation found that the Cadillac Tax could have a negative impact on middle-class workers. One in every 5 employers (21%) would be affected by the Cadillac tax beginning 2020 and the study projects that by 2030, 37% could be affected. The number of employers is even higher when flexible savings accounts are included (46% by 2030).
However, a letter to the U.S. Senate from nearly 100 health economists and policy analysts supports keeping the tax in place. “For decades, economists and health policy experts of all political persuasions have agreed that the unlimited exclusion of employer-financed health insurance from income and payroll taxes is inflationary, inefficient, and regressive. The Affordable Care Act established the Cadillac tax to address these issues,” states the letter.
The economists go on to say in the letter: “The Cadillac tax will help curtail the growth of private health insurance premiums by encouraging employers to limit the costs of plans to the tax-free amount. The excise tax will discourage the provision of insurance that covers such a large proportion of health care spending that consumers have little incentive to insist on cost-effective care and providers have little incentive to provide it. As employers redesign health insurance plans to hold costs within the tax-free amount, cash wages or other fringe benefits will increase. Furthermore, repealing the Cadillac tax would add directly to the federal budget deficit, an estimated $197 billion over the next decade according to the Joint Committee on Taxation.
Implementation of the Cadillac Tax provision has been delayed twice, once in 2015 and again in 2018. The provision was to go into effect in 2020. The law is now slated to take effect in 2022, assuming the law is not repealed before then.
While the future of the Cadillac Tax is uncertain, the ACA remains in effect, along with its Employer Shared Responsibility Provisions, also known as the Employer Mandate.
Under the ACA’s Employer Mandate, Applicable Large Employers (ALEs) (organizations with 50 or more full-time employees and full-time equivalent employees) are required to offer Minimum Essential Coverage (MEC) to at least 95% of their full-time workforce (and their dependents) whereby such coverage meets Minimum Value (MV) and is Affordable for the employee or be subject to Internal Revenue Code (IRC) Section 4980H penalties.
Currently the Tax Agency is issuing Letter 226J penalty assessments to employers identified as having failed to comply with the ACA for the 2017 tax year. Penalties are also being issued for failing to file the annual forms 1094-C and 1095-C with the IRS by the required deadlines and for failing to furnish to applicable employees. These penalties are being issued to employers via Letter 5005A and Letter 972CG. If your organization receives one of these penalty notices, you should consult an expert to provide assistance in responding to the IRS.
