An unpopular provision of the Affordable Care Act (ACA), Cadillac/excise Tax, intended to control health-care spending went in front of lawmakers Wednesday. The House of Representatives voted 419-6 to pass H.R. 748 also known as the “Middle Class Health Benefits Tax Repeal Act of 2019” which would fully repeal the ACA’s Cadillac/excise Tax.
The ACA’s Cadillac/Excise Tax is currently an inactive provision that is to go into effect in 2022. Originally intended to take effect in January 2018, the tax has been twice delayed. The provision was designed as a disincentive for employers offering the most benefit-rich plans. In reality, the tax will impact a majority of plans, including those that are not benefit-rich and were not the intended targets of this provision.
According to MSNBC, the provision imposes a tax on employment-based health insurance coverage that exceeds certain thresholds — $10,200 for individual coverage and $27,500 for family coverage. All health insurance benefits paid by employers above that amount would be taxed at 40%.
Since the pace of healthcare growth is beyond that of general inflation, this means that the tax will likely outgrow itself quickly and many employers will be impacted by the cost of the tax and the enormous compliance burden that the tax creates. Because of the wide-ranging benefits that can be counted towards the tax, including HSAs, HRAs, FSAs, and other cost-containment measures, many employers will find their plans exceeding these thresholds already when the tax takes effect.
An estimated 47% of employers will be subject to the tax by 2022, which could force many to consider dropping employer-sponsored insurance altogether. Individuals and families who are already struggling to afford existing plan premiums and higher deductibles will also be hit by the tax, further increasing their costs, with cost-shifting only adding to growing affordability issues.
As employers make plan decisions well in advance of a coverage year and with looming proposed rules, continued delays have a direct impact on plan decisions that are being made now for the next several coverage years.
The “Middle Class Health Benefits Tax Repeal Act of 2019” will next be considered by the Senate, where a companion bill, S.684, has 42 bipartisan co-sponsors.
Source: National Association of Health Underwriters
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