Cadillac/Excise Tax Delayed


Today, President Obama signed legislation that will delay the Cadillac/excise tax for two more years until 2020.  Additionally the recent signed Omnibus bill suspends a “heath insurance tax” for insurers, defunds the Independent Payment Advisory Board (IPAB), and a tax on medical devices will be suspended for two years.


The Cadillac tax is 40 percent of the value of employer-sponsored plans that exceed certain thresholds: $10,200 for individual coverage and $27,500 for family coverage. In its first year, 2018, it would have affected 26 percent of all employers and nearly half of larger companies, according to the nonpartisan Kaiser Family Foundation. Since the tax is indexed to general inflation, which rises more slowly than health insurance premiums, it would have affected a growing share of health plans over time.


Additional Cadillac Tax Changes  The Omnibus bill also makes the following changes:

Since the tax threshold amounts are indexed based on the Consumer Price Index (CPI), delaying the effective date will result in a higher threshold above which the tax applies. For 2018 the tax thresholds would have been $10,200 for single coverage and $27,500 for other-than-single coverage.

The Cadillac tax will be fully deductible for any entity to which it applies (e.g., employers and insurers). As initially written, it would not have been deductible.

The Omnibus bill also directs the comptroller to undertake a study (in consultation with the National Association of Insurance Commissioners (NAIC) on ways to adjust the threshold to take into account the age and gender makeup of an employer’s workforce.

HIT Tax Suspended and IPAB Defunded The Omnibus bill affects several other Affordable Care Act provisions, including:

It suspends the health insurance industry fee for 2017. This is often referred to as the “HIT” tax or health insurance tax. This tax applies to insured plans only, so has provided an incentive for insured employers to change to self funding to avoid this additional tax.

It defunds the Independent Payment Advisory Board (IPAB), a 15-member panel of health care experts created by the ACA (sections 3403 and 10320) and tasked with making annual cost-cutting recommendations for Medicare if Medicare spending exceeds a specified growth rate.