With the Supreme Court’s June ruling signifying that the ACA is here to stay, many are now looking ahead to the 2018 Cadillac tax as more of a reality – and its heating up discussions among economists, large corporations, unions, and politicians. In fact, later this month a lobbying group called The Alliance to Fight the Forty is launching to attempt to repeal the tax. And legislation to repeal the tax was introduced by both Republicans and Democrats in the Spring.
At its core, the Cadillac tax is designed to reduce healthcare costs and support funding for the ACA by implementing a 40 percent excise tax on healthcare plans that exceed predetermined thresholds*. One significant controversy around the tax lies in that the rate of inflation tied to the excise tax is much lower than expected rises in healthcare costs – meaning that while one-third of employers may be expected to pay the tax in 2018, nearly 60% may have to pay in 2022 (source: Mercer). As a result, employers are looking for ways to reduce healthcare costs to be below the threshold – more than likely by raising deductibles, cutting benefits, and shifting more of the financial responsibility to employees.
On the flip side, many health economists say that health insurance is compensation just like wages, and as such be should be taxed in the same way (essentially getting rid of the tax exclusion for employee-sponsored healthcare). However, economists also note that most current premiums will fall below the Cadillac tax threshold caps in 2018, and that the tax will ultimately slow the growth of healthcare costs and lead to more money being shunted into paychecks. In addition, the tax is expected to bring in billions of dollars to help support and sustain the ACA for the long-term.
With the 2016 elections just around the corner its expected that the ACA will continue to be a hot debate among candidates, and the pros and cons around the Cadillac tax will take a front row seat in the ring. For more information about how the Cadillac tax may impact your organization in 2018 and beyond, please contact us.
* In 2018, the threshold will be $10,200 for singles and $27,500 for families.
The information and materials herein are provided for general information purposes only and are not intended to constitute legal or other advice or opinions on any specific matters and are not intended to replace the advice of a qualified attorney, plan provider or other professional advisor. This information has been taken from sources believed to be reliable, but there is no guarantee as to its accuracy. In accordance with IRS Circular 230, this communication is not intended or written to be used, and cannot be used as or considered a ‘covered opinion’ or other written tax advice and should not be relied upon for any purpose other than its intended purpose