The controversial Cadillac Tax has been permanently repealed.
In December 2019, President Trump signed into law an appropriations bill for 2020 that, among other things, repealed the Cadillac Tax and extended PCORI. The Cadillac Tax, which had never gone into effect, was unpopular with both major parties, labor unions, and benefits organizations.
After several years of delays, the move to repeal the unpopular tax began in July 2019, with the “Middle Class Health Benefits Tax Repeal Act of 2019.” The bill had over 350 sponsors and passed with 419 lawmakers voting yes.
Many organizations, including the Employer’s Council on Flexible Compensation (ECFC) and the Society for Human Resource Management (SHRM), backed Cadillac Tax repeal. A major concern was that the tax would cause employers to reduce health benefits or burden workers with an increase in cost-sharing. Other concerns were that it would unfairly target high-cost health plans that covered people in poor health and people living in areas with high healthcare costs.
What is the Cadillac Tax?
Officially known as the Affordable Care Act’s high-cost plan tax (HCPT), the Cadillac Tax was passed by Congress in 2015. President Obama immediately imposed a two-year delay on the start of the act from 2018 to 2020; it was later pushed back to 2022. Ultimately, the tax was never implemented before being repealed in 2019.
The tax had three goals:
- Curb the growing cost of healthcare
- Roll back the favorable tax treatment of employer-provided insurance
- Generate revenue to fund the Affordable Care Act (ACA)
Had it gone into effect, The Cadillac Tax would require coverage providers to pay a 40 percent excise tax on “excess benefits,” or the value of health insurance benefits surpassing $10,200 for individuals and $27,500 for families in 2022. The Cadillac Tax applied to current and retired employees for “any applicable employer-sponsored coverage”; this included Flexible Spending Accounts (FSAs) and Health Savings Accounts (HSAs).
The same legislation that repealed the Cadillac Tax also extended funding for the Patient Centered Outcomes Research Institute (PCORI) for 10 years. Originally passed with the Affordable Care Act, PCORI sponsors comparative research for patients and caregivers to help them make better healthcare decisions. It was due to expire this year.
HIT and device taxes also eliminated
The 2020 spending bill also eliminated two other non-employer ACA taxes: the health insurance tax (HIT) on fully insured health plans, and the 2.3 percent tax on medical devices.
DataPath, Inc. is a leading provider of technology solutions for employer-sponsored healthcare benefits, including FSAs, HSAs, and COBRA. DataPath is an active member of ECFC.