On December 18th, 2015, President Barack Obama signed into a law a bill that delays implementation of the Cadillac Tax until 2020.
While much of the discussion around the Affordable Care Act currently centers on the “Pay or Play” and Employer Reporting Requirement rules, there is no doubt that the “Cadillac Tax” provision is looming large on the mind of many organizations.
Beginning in 2018, the ACA imposes a 40 percent excise tax on high-cost group health coverage. This tax, which commonly referred to as the “Cadillac tax,” is intended to encourage companies to choose lower-cost health plans for their employees.
Overview of the Cadillac Tax
The “Cadillac Tax” provision taxes the amount of an employee’s “excess benefit”, which is the amount by which the monthly cost of an employee’s employer-sponsored health coverage exceeds the annual limitation.
For 2018, the statutory dollar limits are:
- $10,200 per employee for self-only coverage
- $27,500 per employee for other-than-self-only coverage
The cost of applicable coverage for purposes of the Cadillac tax is determined under rules similar to those used for determining the COBRA applicable premium. The tax amount for each employee’s coverage will be calculated by the employer and paid by the coverage provider.
This tax applies to applicable employer-sponsored coverage for both insured and self-insured plans.
Opportunity to Submit Comments to the IRS
While the “Cadillac Tax” has already caused discussions and even some plan changes among employers, the IRS is still defining how this provision will be implemented. In fact, neither proposed nor final regulations have been issued.
However, the IRS recently released Notice 2015-16, which describes potential approaches in regards to a number of issues under the Cadillac tax.
Employers may submit comments about these approaches to the IRS via email until May 15, 2015.
We hope that you find this brief summary helpful.
We encourage all clients to download our full compliance bulletin on this topic within CBGconnect, which is our employer-facing portal. If you would like to receive a copy of that bulletin via email, please contact us today.
In the meantime, if you have any questions about what your organization should now in respects to the looming “Cadillac Tax”, please give our Health Care Reform team a call at 781-759-1222.