Congress delays health insurance tax until 2022
The short-term spending bill signed by President Donald Trump early this year ended the government shutdown, and also included another delay in the effective date of the Affordable Care Act’s excise tax on high-cost employer-sponsored coverage, commonly referred to as the “Cadillac tax.”
The Cadillac tax, named of course after the iconic luxury automobile brand, is a 40 percent excise tax imposed on the value of certain excess benefits offered under employer-provided health insurance policies. Originally, the tax was not deductible. But in a 2016 spending bill, Congress changed that and made the tax deductible.
The Cadillac tax was first scheduled to take effect in 2018. However, in 2016 Congress passed an omnibus spending bill that included a two-year delay of the tax, pushing out the effective date to 2020. The recent bill tacks on another two years to push the effective date to 2022.
The Cadillac tax was intended to discourage employers from offering high-cost health plans. Some economists have argued that because income taxes are not paid on health insurance benefits, health care prices have risen because employers pay more for health care than they would if these benefits were taxable at certain levels.
It is anticipated that many collectively bargained health and welfare plans in areas with especially high-cost health care, such as the Northeast U.S. and California, will be subject to the tax.
Many groups have supported outright repeal of the tax, arguing that the tax will result in shifting of steadily increasing health care costs to employees.
Attorney Michael McNally is a shareholder with the Minneapolis law firm Felhaber Larson, and practices in the areas of labor law and employee benefits, with extensive experience in the construction industry. He is labor council for the Sheet Metal and Air-Conditioning Contractors’ National Association.