“Repeal of the Cadillac Tax continues to be one of our highest legislative priorities,” said Martin Trussell, ECFC Executive Director. “We want to thank Congress and the Administration for recognizing the deleterious effect that the Cadillac Tax would have on employer sponsorship of health care plans, especially consumer-directed health plans, and for repealing the tax.”
What is the Cadillac Tax?
Designed to discourage employers from offering health insurance plans with excessively rich benefits, the Cadillac Tax was scheduled to become effective in 2022. The tax is equal to 40 percent of the value of any coverage in excess of $10,200 for an individual and $27,500 for a family. Required to be paid by the health plan itself or in some cases the employer sponsoring an arrangement or its plan administrator, the Cadillac Tax applies to current and retired employees and includes “any applicable employer-sponsored coverage.”
To determine whether these cost thresholds are exceeded, according to William Sweetnam, Legislative and Technical Director for the ECFC, an overly broad net is cast on many employer-sponsored arrangements that actually promote efficient health care. Many of these arrangements, Sweetnam points out, are wellness incentives and consumer-directed coverage arrangements including FSAs, HRAs and HSAs.
“In particular, the statute is being interpreted under guidance issued by the Treasury Department and the Internal Revenue Service to require the contributions made by individuals into their HSAs and FSAs to be deemed as if they were provided by the employer for purposes of calculating the tax,” said Sweetnam. “As a result, employers are curtailing or eliminating employee contributions to FSAs and HSAs in order to avoid triggering the Cadillac Tax. The repeal of the Cadillac Tax will stop this trend and employees will continue to take advantage of these consumer-directed health plans.”
Bi-partisan Consensus for Repeal
In a strong bipartisan showing in July, the House of Representatives voted overwhelmingly to repeal the Cadillac Tax in the Middle Class Health Benefits Tax Repeal Act of 2019 (H.R. 748). The Senate companion bill, S. 648, has 62 co-sponsors evenly divided between Republicans and Democrats. Congress recognized that the Cadillac Tax hurt employees since it forced employers to reduce the health care benefits they offered employees and forced employees to shoulder more of the costs of health care. The Trump Administration has also been a strong supporter of consumer-directed health plans which will be strengthened with the repeal of the Cadillac Tax.
ECFC is a leading non-profit organization dedicated to maintaining and expanding employee benefit programs on a tax-advantaged basis. ECFC represents and promotes employee benefit programs through effective lobbying and provides education and awareness to members, compensation practitioners, national opinion leaders and the general public to help advance healthcare consumerism. ECFC, which was founded in 1981 as the Employers Council on Flexible Compensation, is the single organization that focuses its efforts on preserving, protecting and defending the tax-advantaged programs currently available to working families through employer plan sponsors. Visit https://ecfc.org/ for more information.