Cadillac Tax and Health Insurance Tax Pushed Back

Late Monday evening, Jan. 22, President Trump signed H.R.195 to end the government shutdown and fund the government through Feb. 8, 2018. The bill passed the House with a 266-159 vote and the Senate 81-18.

What details should you know?

H.R. 195 doesn’t just open our government back up for business, though. Notably for employers and group health plans, the bill includes provisions to delay certain tax provisions within the ACA. Specifically, the bill includes a further delay in the implementation of the excise tax on high-cost, employer-sponsored health coverage (the Cadillac tax), which is now set to take effect in 2022, after being previously delayed until 2020.

The bill also suspends the annual Health Insurance Provider Fee (also known as the health insurance tax, or HIT) for 2019. It was previously suspended in 2017, is now effective in 2018, is evidently now on moratorium in 2019 and will be in effect again for 2020 and beyond, barring any other congressional interference. The bill includes a six-year reauthorization of the Children’s Health Insurance Program (CHIP) and, finally, a moratorium on the medical device excise tax, which is now set to apply for sales after Dec. 31, 2019

What does this mean?

  • The Cadillac tax imposes a 40 percent excise tax on the amount of aggregate monthly premium – or FSA, HSA or HRA – on each primary-insured individual that exceeds the certain year’s applicable dollar limit.
    • These frequent delays and Capitol Hill buzz also appear to show bipartisan support for an eventual repeal of the Cadillac tax entirely.
  • The HIT is a sales tax on health insurance with a fee set annually by the Treasury to raise a specific amount of revenue.
    • The HIT tax is not tax deductible and is imposed on “net” health insurance premiums.
    • The HIT applies to insurers, meaning self-insured employers are exempt.

The delays of both the Cadillac tax and HIT should grant many employers a welcome sigh of relief, considering the impact both could eventually have on their benefits planning. If you have any questions, please contact your advisor to consider whether plan amendments are necessary in light of these changes.