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The 'Cadillac Tax' - What's It All About?

Jan 23, 2018

By Stacy Small

Buried in the Affordable Care Act is an excise tax on high-cost employer health insurance plans, AKA the “Cadillac Tax”.  Although that tax now isn’t set to take effect until 2022*, many of our employer clients had special reason to hold their collective breath while following the recent Congressional Budget Bill brouhaha. 

*Yesterday’s decision to end the government shutdown pushed the effective date for the “Cadillac Tax” ahead by two years.

What’s it all about?

  • Health insurance benefits in general are federal income tax-advantaged. Employer-paid premiums for health insurance are exempt from federal income and payroll taxes, and the portion of premiums paid by employees is typically excluded from taxable income as well.
  • The “Cadillac Tax” was originally conceived as a way to help the government fund the health insurance mandate by in effect taxing previously untaxed, high-level, employer and employee contributions that are considered “too rich” in benefits.
  • The “Cadillac” would impose a 40% excise tax on employer plans exceeding $10,200 in premiums a year for individuals and those exceeding $27,500 for families.
  • One particularly onerous aspect of the tax would be that those dollar thresholds would be calculated to include not only employer and employee contributions, but also contributions to health savings accounts, medical savings accounts, and health reimbursement accounts.

Whatever happens four years from now, the “Cadillac Tax” delay represents very good news for our Gregory & Appel employer clients, who will have time to analyze benefit structures and make appropriate adjustments within their three to five year projected strategies.

“We applaud Congress for delaying the ‘Cadillac Tax’ that is driving up health care costs for millions of Americans,’ said James A. Klein, President of the American Benefits Council.  “Taxing health benefits would compel employers to stop offering wellness programs and on-site clinics and ask employees to bear higher out-of-pocket costs…”

At Gregory & Appel, where our focus is reducing health care costs through effective benefit plans and employee engagement, we’re more than happy for the new “breathing room” our clients now have.  What’s it all about for us? Guiding our clients through the complex – and ever-evolving – health care delivery landscape.