Today, Congress approved a provision in an omnibus spending/budget bill that will delay for two years the Affordable Care Act’s “Cadillac tax,” the controversial 40% tax on high value health coverage. The tax, described in more detail in a prior alert, was slated to become effective in 2018, but will now become effective on January 1, 2020.
Equally important, the bill also allows plan sponsors to treat any Cadillac tax payment as a deductible business expense. Under the original provision that was added by the Affordable Care Act, the Cadillac tax was not deductible.
The Cadillac tax is a key part of the funding of the Affordable Care Act. Nevertheless, employers, unions, and health insurers have been increasingly objecting to the tax as 2018 approaches. While the tax is broadly unpopular with groups across the political spectrum, it remains unclear if Congress will continue to chip away at it or eliminate it entirely. Until then, plan sponsors with high value coverage and employers negotiating collective bargaining agreements between now and 2020 should work under the assumption that the tax will go into effect in 2020.
Both houses of Congress have passed the bill, which the President is expected to sign shortly.