In a new spending bill approved last week, the controversial Cadillac Tax has been permanently repealed.
On December 17, 2019, the House of Representatives passed an appropriations bill that approved federal funding for 2020, repealed the Cadillac Tax, and extended PCORI, among other things. The Senate approved two days later, and then on Friday, December 20, President Trump signed the legislation. The Cadillac Tax, which had never gone into effect, was unpopular among both major parties, labor unions, and other 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 the 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. There were also concerns it would unfairly target high-cost health plans that covered people in poor health or people living in areas where health costs are high.
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. However, the tax was never implemented. 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.
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 levied 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).
Another notable healthcare-related part of the bill is that it 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 so they can make better healthcare decisions. It was due to expire this year.
The 2020 spending bill 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.
It also eliminated unrelated business income taxes (UBIT) on tax-exempt organizations that offer qualified transportation benefits to their employees.
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.