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Health and Welfare

Cadillac Tax Delayed Until 2020

On December 18th, 2015 Congress passed a $1.1 trillion spending bill to fund government operations and avoid shutdown.  Included in the bill is a two-year delay to the “Cadillac Tax” provision of the Patient Protection and Affordable Care Act.  The Cadillac Tax is a 40% excise tax on employer-sponsored health plans that exceed specific thresholds (plans exceeding $10,200 for individual coverage and $27,500 for family coverage).  The provision will now be effective for plans starting in 2020.

This takes some pressure off companies who are already looking for ways to avoid this tax by changing their benefit plan designs.  While the delay only seems to kick the can down the road, this important step shows bipartisan support is growing for complete repeal or at least a reform of the Cadillac Tax.

NBS supports the Employers Council on Flexible Compensation’s “My Money, My Health” Campaign to exclude employee contributions to FSAs and HSAs from the tax calculation or repeal the tax entirely.  If FSA and HSA contributions are included in the calculation, many employers will curtail or eliminate these contributions to avoid the tax.

One of the main intentions of the Cadillac Tax is to try to decrease the cost of health care by addressing excessive health care spending.  The “rich” benefit plans that will trigger this tax often have no deductible and low out of pocket costs.  The argument is that when out of pocket costs are low, consumers seek out care that they do not need or treatments that are not cost-effective.  This kind of excessive spending allows for providers to increase prices with little risk of consumers shopping around for a better deal.  The tax is intended to make employers shift costs to their employees so that they act more like consumers when it comes to health care spending.  As consumers change their behavior it will have a positive impact on health care costs overall.

If the Cadillac Tax is intended to increase consumerism in health care spending, FSAs and HSAs need to be protected because they are an important part of the solution.  FSAs and HSAs cause higher consumerism because employees are saving their own money for health care costs.  FSAs and HSAs also provide flexibility and predictability to health care spending when costs are shifted to employees.  So, without FSAs and HSAs, employees will not have the tools to handle the increased out of pocket costs that will be shifted on to them.

NBS advises its clients not to rush to make changes to their benefit designs.  There is certainly more to happen with regards to the Cadillac Tax – and with or without the Cadillac Tax, the FSA or HSA you offer your employees is an important benefit to help manage out of pocket health care costs.