Tax Reform

 

Background

Under the Affordable Care Act of 2010, employer-sponsored health benefits whose value exceeded specified thresholds would have been subject to an excise tax. The High-Cost Plan Tax, also known as Cadillac Tax, would equal 40% of the value of health benefits exceeding thresholds projected to be $11,200 for single coverage and $30,150 for family coverage. The Cadillac Tax was originally scheduled to take effect in 2018 but had been delayed twice by legislation and was set to come into effect in 2022. The Council is ecstatic to announce that the end of year government funding agreement (Further Consolidated Appropriations Act of 2020, below) includes language to fully repeal the Cadillac Tax.

The Issue

The goal of the Cadillac Tax was to tax companies providing individuals with too much insurance coverage, in order to avoid coverage of superfluous tests and treatments which drive national health spending beyond what is necessary and desirable. This, in theory, would have decreased the amount of high-cost insurance plans; thus, lowering overall healthcare costs. However, employers would have scrambled to stay under the threshold for the impending tax due to rising costs of deductibles and premiums, which are assumed to growth by an average of 4.9% annually for the next decade. In fact, a research by the Kaiser Family Foundation shows that the “percentage of employers with a plan reaching the threshold [was] projected to grow fairly rapidly over time, to 28% in 2025 and 37% in 2030 without including potential FSA contributions, and to 38% in 2025 and 46% in 2030 when they are included.”

Our Position

The Council has worked for years alongside the employer community and organized labor to see an end to the Cadillac Tax. The major hurdle to the effort was the $87 billion cost associated with a complete repeal. In 2009, the Congressional Budget Office derived the $87 billion figure by assuming that employers would increase salaries (thereby increasing taxable income) as they scaled back benefits to avoid hitting the threshold. The Council firmly disagreed with the assessment that most companies would cleanly shift money from employee benefits to employee salaries.

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