Congress Repeals the Cadillac Tax and Health Insurance Tax

Congress overwhelmingly passed an end-of-year spending bill and a companion tax extenders measure that contain several agenda items, including full repeal of the so-called Cadillac tax on high-cost health plans. The SECURE Act, a measure to promote savings by easing compliance burdens on defined-contribution and defined-benefit retirement plans, was attached to the appropriations bill.

E-Verify also was extended for another year, along with other workplace-immigration programs.

The House approved these measures on Dec. 17 and Senate passage followed two days later. President Donald Trump is expected to sign the bills into law.

Some of the items in the package that were previously passed by the House were consolidated in the new bills to facilitate the Senate's consideration and approval.


'Cadillac Tax' Repeal

The spending bill includes full repeal of the so-called Cadillac tax on high-cost health plans, which the House passed in July but the Senate had yet to consider. The spending bill also repeals two other Affordable Care Act (ACA) taxes not paid directly by employers: the health insurance tax (HIT) on fully insured health plans and the ACA's tax on medical devices.

The Cadillac tax, included in the ACA but delayed several times from taking effect, is a 40 percent excise tax on the cost of employer health plans in excess of annual cost thresholds. While the excise tax was intended to target high-value plans, without repeal "modest plans will also be impacted, meaning millions of Americans and their families could face higher co-pays and deductibles, causing some to decline employer-provided health care," wrote Johnny C. Taylor, Jr., SHRM-SCP, president and CEO of SHRM, in a letter sent in July to Congress.

Neil Bradley, chief policy officer at the U.S. Chamber of Commerce, commended congressional leaders for "setting the stage for permanently repealing the Cadillac tax, the HIT and the [medical device tax], which would finally put an end to the higher health costs that come from the taxes and would improve access to more affordable coverage."

AHIP, a national association of health insurers, said that because insurers passed along the cost of the HIT to employers in the form of higher premiums, "families in the small-employer market could see their premiums go up an additional $7,000 over the next 10 years because of this tax," absent repeal.

HR consultancy Mercer noted: "By axing the ACA's Cadillac, health insurance (repealed effective 2021) and medical device (repealed effective 2020) taxes, the spending package removes nearly all of the law's major funding provisions, except the employer shared-responsibility assessments."

Excerpt from Stephen Miller, CEBSDecember 19, 2019

House Passes Health Care 'Cadillac Tax' Repeal Bill

The U.S. House of Representatives voted on July 17 to abolish the so-called "Cadillac tax" on employer-sponsored high-value health plans, set to take effect in 2022. If the Senate passes the measure and the president signs it into law, the threat employers have faced from the tax would disappear.

The Cadillac tax, part of the Affordable Care Act (ACA) passed in 2010, is a 40 percent excise tax on the cost of employer health plans in excess of annual cost thresholds. It was intended to help generate tax revenue to help fund the ACA's subsidies for marketplace plans.

The tax, originally intended to take effect in 2018, was delayed twice by Congress and is now scheduled to go into effect in 2022. It is calculated based on: the costs of plan premiums (whether employer- or employee-paid and whether the plan is fully insured or self-funded); employer contributions and employee-elected payroll deductions to health savings accounts and flexible spending accounts; employer contributions to health reimbursement arrangements; the cost of group wellness programs; the value of coverage in onsite medical clinics; and certain other health benefits.  As currently projected: If the average plan cost to cover employees and dependents is more than $11,200 for individual coverage and $30,150 for family coverage, employers would pay the tax on plan costs for each covered person above these threshold amounts. 

"The House action to repeal the Cadillac tax is welcome news for both employers and employees," said Brian Marcotte, president and CEO of the National Business Group on Health. "Any tax that raises the cost of health benefits will harm the millions of working Americans and their families who rely on and value employer-sponsored health coverage.”

The Cadillac tax also has supporters. The tax "has a strong policy rationale: It will help slow health care cost growth," wrote Paul N. Van de Water, a senior fellow at the nonprofit Center for Budget and Policy Priorities, which advocates for sound fiscal policy.

Excerpt from SHRM Article dated 7-17-19 by Stephen Miller, CEBS

Tax Reform Bill Includes Repeal of Individual Mandate Beginning in 2019

December 20, 2017 from Cigna 

Tax Reform Bill Includes Repeal of Individual Mandate Beginning in 2019

On Dec. 20, Congress passed the Tax Cuts and Jobs Act, which makes significant changes to individual and corporate provisions of the U.S. tax code, including a reduction in the corporate tax rate to 21%, down from 35%, beginning in 2018. The bill includes permanent effective repeal of the Affordable Care Act (ACA) individual mandate, requiring individuals to purchase and maintain health coverage, by zeroing out the penalty beginning in 2019. For 2018, most individuals are still required to maintain coverage or pay a penalty when they file their 2018 federal income tax return.

The bill was negotiated by a conference committee comprised of representatives from both the Senate and House after each chamber passed their own versions of tax reform. The final bill was passed 51-48 by the Senate and 224-201 by the House before being sent to the President. President Trump is expected to sign the bill into law soon.

The bill also changes how certain tax thresholds will be indexed for inflation. Affected provisions, including the ACA “Cadillac” Tax (scheduled to take effect in 2020), will now be indexed to the Chained Consumer Price Index (CPI) instead of the regular CPI (the previous metric). That change makes it likely that more employer-sponsored plans would trigger the Cadillac tax sooner. 

House and Senate Tax Reform Comparison Chart

House and Senate Tax Reform Proposal Comparison

Employer-Provided Retirement Plans

H.R. 1, Tax Cuts and Jobs Act	Senate Proposal, Tax Cuts and Jobs Act
Defined Contribution Retirement Plans
Preserves the current tax treatment of employer-provided plans
Defined Contribution Retirement Plan Loans
Changes repayment time frame on retirement plan loans from 60 days after separation of employment to end of the federal taxable year. Effective for plan years after 2017.	Changes repayment options for 457 and 403(b) plans to allow rollovers or loan repayment to take place by the end of the federal taxable year. Effective for tax years after 2017.
Defined Benefit Pension Plan Non-Discrimination Clarity
Provides relief for defined benefit pension plans that are soft-frozen. Allows cross-testing of participants in order to not violate non-discrimination testing limits. Effective upon date of enactment.	Proposal does not contain this provision.
457 Retirement Plan Changes
Bill does not contain this provision.	Sets deferral and catch-up contribution limits at the same levels as 401(k) and 403(b) plans. Also repeals former allowable contributions to 457 plans for up to five years after separation of employment. Effective for tax years after 2017.
In-Service Distributions for Defined Contribution Plans
Would allow all defined benefit plans as well as state and local government defined contribution plans to make in-service distributions beginning at age 59½. Effective for plan years after 2017.	Proposal does not contain this provision.
Defined Benefit Retirement Plan Contributions After Hardship Withdrawal
IRS would be required within one year of the date of enactment to change its guidance to allow employees taking hardship distributions to continue making contributions to the plan. Effective for plan years after 2017.	Proposal does not contain this provision.
Defined Benefit Retirement Plan Hardship Withdrawals
Employers who choose to allow hardship distributions could also include employer contributions as part of the amount eligible for withdrawal. Effective for plan years after 2017.	Proposal does not contain this provision.

Executive Compensation

H.R. 1, Tax Cuts and Jobs Act	Senate Proposal, Tax Cuts and Jobs Act
Compensation
Removes the exemption of certain forms of compensation for highly compensated employees. Commissions, performance-based remuneration, stock options, payments to a tax-qualified retirement plan and amounts that are excludable from the executive’s gross income will be taxable.  Expands the scope of covered individuals to include an organization’s CEO, CFO and three highest-paid employees.  Effective for tax years after 2017.	Modifies the definition of what is included as compensation for highly compensated employees to include commission- and performance-based compensation. Expands the scope of covered individuals to include an organization’s CEO, CFO and three highest-paid employees. Applies provision to any compensation arrangement entered into after November 3, 2017.
Excise Tax on Highly Compensated Employees at Non-Profits
Creates a 20 percent excise tax for non-profits (including 501(c)(3), 501(c)(6)) on the compensation of the five highest-paid employees who earn more than $1 million. Effective for tax years after 2017.

Employer-Provided Benefits

H.R. 1, Tax Cuts and Jobs Act	Senate Proposal, Tax Cuts and Jobs Act
Education Assistance (Section 127)
Eliminates the tax exclusion that allows employers to provide up to $5,250 of education assistance per year tax-free to their employees at the undergraduate, graduate or certificate level. Benefit would be taxable to both the employer and the employee. Effective for tax years after 2017.	Proposal does not contain this provision.
Tuition Reduction (Section 117)
Eliminates the tax exclusion for educational assistance for employees, their spouse or dependents at educational institutions. Benefit would be taxable to both the employer and the employee. Effective for tax years after 2017.	Proposal does not contain this provision.
Dependent Care Accounts
Eliminates the tax treatment of dependent care flexible spending accounts of up to $5,000 per year under Section 129. Effective after 2022.	Proposal does not contain this provision.
Moving Expenses
Eliminates the tax exclusion and the deduction related to moving expenses. Value of the benefit will be included as taxable income and the deduction will be eliminated for individual taxpayers. Effective for tax years after 2017.	Suspends the tax exclusion and the deduction related to moving expenses until 2025. Value of the benefit will be included as taxable income, and the deduction will be eliminated for individual taxpayers.
Biking Benefit
Bill does not contain this provision.	Eliminates the tax exclusion on the benefit. Value of the benefit will be included as taxable income. Exclusion will be sunset in December 2025.
Adoption Assistance
Eliminates the tax exclusion on the benefit. Value of the benefit will be included as taxable income for individual taxpayers. Effective for tax years after 2017.	Proposal does not contain this provision.
Achievement Awards
Eliminates the tax exclusion on the benefit. Value of the benefit will be included as taxable income for individual taxpayers. Effective for tax years after 2017.	Proposal does not contain this provision.
Child Care Facilities
Repeals the tax credit equal to 25 percent of qualified expenses for employee child care and 10 percent of qualified expenses for child care resource and referral services. Effective for tax years after 2017.	Proposal does not contain this provision.
​Fringe Benefits (Transportation, Meals, Gyms)
Taxes tax-exempt entities on the values of providing their employees with transportation fringe benefits, on-premises gyms and other athletic facilities by treating the funds used to pay for such benefits as unrelated business taxable income, thus subjecting the values of those employee benefits to a tax equal to the corporate tax rate. Value of the benefit will be included as taxable income. Effective for tax years after 2017.	Proposal does not contain this provision.
Medical Savings Accounts (MSAs)
Repeals the tax exclusion for contributions to Archer MSAs. Existing Archer MSA balances, however, could continue to be rolled over on a tax-free basis to an HSA. Effective for tax years after 2017.	Proposal does not contain this provision.

Other Related Provisions

H.R. 1, Tax Cuts and Jobs Act	Senate Proposal, Tax Cuts and Jobs Act
Work Opportunity Tax Credit
Repeals the 40 percent tax credit for employers who hired individuals from certain targeted groups. Effective for tax years after 2017.	Proposal does not contain this provision.
FICA Tip Credit Tax
Modifies the calculation that affects the amount employers pay on taxable wages of their tipped employees. Creates a new reporting requirement. Effective for tax years after 2017.	Proposal does not contain this provision.
Intermediate Sanctions on Non-Profits
Bill does not contain this provision.	Applies intermediate sanctions rules to 501(c)(5) and 501(c)(6) organizations, levying a 10 percent tax on the organization for willful violations. Eliminates the safe harbor for non-profits that exercise due diligence in determining compensation. Effective for tax years after 2017.
Repeal of the Individual Mandate Penalty Under the Affordable Care Act
Bill does not contain this provision.	Reduces the individual mandate penalty to zero. Effective for tax years after 2018.
Family and Medical Leave Act (FMLA) Credit for Employers
Bill does not contain this provision.	Provides an employer a credit of 12.5 percent of the wages paid to a qualified employee utilizing FMLA. Effective for tax years after 2017.

*Proposals as of November 25, 2017.  Posted from SHRM.

Legislative Update: ACA Repeal, Replace Advances Through House

Early this morning the House Ways and Means Committee approved the American Health Care Act—to replace tax elements of the Affordable Care Act (ACA)—by a vote of 23-16.

House Republican leadership introduced the legislation March 6. The American Health Care Act was created under the budget reconciliation process and requirements and is limited in its scope to amend only the tax provisions of the ACA. It does not amend the insurance and the underlying coverage requirements of the ACA. Using this process allows supporters of the American Health Care Act to pass changes to the ACA in the Senate with a simple majority of 51 votes instead of the 60 votes needed to override an expected Democratic filibuster. 

In introducing the legislation, House Speaker Paul Ryan outlined three steps Congress and the Trump Administration will now take to replace the ACA:

1. Pass the American Health Care Act.
2. Make additional changes to the rules that govern the ACA through the regulatory process.
3. Work with Democrats to pass legislation to address the insurance elements of the ACA that need reform, which will require support of Senate Democrats in order to avert a filibuster. 

The Ways and Means and Energy and Commerce Committees began work on the bill this week and the legislation will likely change as it works its way through the legislative process.  The House Budget Committee is expected during the week of March 13 to package the Ways and Means language with provisions from the Energy and Commerce Committee, which is yet to vote on the bill. If passed by the Committees, the legislation could be considered by the full House as early as the week of March 20.

Key issues of interest to the HR profession and the workplace: 

• Reduces employer mandate penalty. Under current law, certain employers are required to provide health insurance or pay a penalty. This bill would reduce the penalty to zero for failure to provide minimum essential coverage. The employer mandate will remain and would have to be repealed through future legislation. The effective date would apply beginning after December 31, 2015, providing retroactive relief to those impacted by the penalty in 2016.
• Reduces individual mandate penalty. Under current law, most individuals are required to purchase health insurance or pay a penalty. This bill would reduce the penalty to zero for failure to maintain minimum essential coverage. The individual mandate will remain and would have to be repealed through future legislation. The effective date would apply beginning after December 31, 2015, providing retroactive relief to those impacted by the penalty in 2016.  
• Creates a continuous coverage requirement surcharge. This bill creates a new continuous coverage requirement surcharge. To avoid a 30 percent premium surcharge, individuals must prove that they did not have a gap in creditable coverage beyond 63 continuous days during the 12 months preceding coverage. Individuals aging out of dependent coverage must prove that they enrolled during the first open enrollment period after which dependent coverage ceased. The penalty does not vary by health status but would be greater for older individuals since premiums may vary with age. The penalty lasts for the remainder of the plan year for special enrollments during 2018, and for the 12-month period beginning with the first day of the plan year for 2019 and succeeding years.
• Delays excise tax on high-value health care plans. The ACA imposed a 40 percent excise tax on high cost employer-sponsored health coverage to benefits exceeding certain thresholds ($10,200 for individual coverage and $27,500 for family coverage). Under current law, the tax is scheduled to go into effect in 2020. This bill changes the effective date of the tax for taxable periods beginning after Dec. 31, 2024.
• Repeals the health insurance tax. The ACA imposed an annual fee on certain health insurers. The proposal repeals this health insurance tax beginning after Dec. 31, 2017.
• Repeals increase of tax on HSAs. The ACA increased the percentage of the tax on distributions that are not used for qualified medical expenses to 20 percent. This bill lowers the rate to pre-ACA percentages. This change is effective for distributions after Dec. 31, 2017.
• Repeals the limit on contributions to FSAs. The ACA limits the amount an employer or individual may contribute to a health Flexible Spending Account (FSA) to $2,500, indexed for cost-of-living adjustments. This bill repeals the limitation on health FSA contributions for taxable years beginning after Dec. 31, 2017.

As noted above, the bill does not repeal the ACA insurance reforms, including the following health plan requirements:

• Coverage of pre-existing conditions;
• Guarantee availability and renewability of coverage;
• Coverage of adult children up to age 26;
• Cap out-of-pocket expenditures;
• Prohibitions against health status underwriting, lifetime and annual limits, and discrimination on the basis of race, nationality, disability, age, or sex.

Since the legislation does not eliminate the employer mandate, employer reporting requirements under the ACA would not change.

-SHRM-By Chatrane Birbal, March 9, 2017

Repeal of the "Cadillac Tax" under ACA

The Cadillac tax is slated to take effect in 2018 for individuals with health insurance plans worth more than $10,200 a year or families with plans worth more than $27,500. That's $850 for an individual plan and includes other things like Employer HSA contributions, Employer HRA Contributions, Wellness plans, pre-tax policies for specific disease or illness plans (Cancer Policy). The tax itself is a 40% non-deductible excise tax on any amount above these thresholds.  Under the tax, those plans that are fully insured, employers calculate and insurers pay the tax, for Self-funded plans, the employers calculate and "the person who administers the plan benefits" pays and under HSA's and HRA's Employers calculate and employers pay.

The tax was included in the law to curb the highly comprehensive, highly expensive health plans as well as help raise funding for the ACA, an estimate 87 Billion over the next ten years.

Now that we are getting closer to point of impact, even democrats are no longer supporting the tax because it's not really a tax on "Cadillac Plans" but many mid-level plans simply because of the rising cost of health care.

"The 'Cadillac Tax' will raise barriers that would deprive patients of needed cancer screenings, diagnostic tests and lifesaving treatment," said Rep. Joe Courtney, D-Conn., who is the sponsor of a House bill to repeal the tax.  "We must repeal this onerous tax before it diminishes the progress we have made since enactment of the ACA."   

PPACA....IT'S TIME.....REPORTING HEALTH COVERAGE COST ON W-2

The provision that required employers to report the cost of Medical, Dental and Vision coverage was supposed to go in effect for reporting year 2011.  However, that was delayed and the IRS has issued guidance for reporting these amounts (2012-9) for 2012 W-2's.

In a nutshell, the IRS stated that all employers who have issued more than 250 W-2's will be required to show the value of the employer sponsored medical, dental and vision coverage on their employees 2012 W-2's.  The cost of coverage does not include contributions made to a Health Savings Account (HSA), Medical Savings Account (MSA) or Health Reimbursement Arrangements.

In calculating the cost of coverage to be reported, the IRS indicated that this amount would be the same amount used to calculate the COBRA cost, not including the 2% administration fee, if any.

Those employers who file less that 250 W-2's are exempt from this provision at least through 2012.

The big question is why does the IRS want this information?  They state it's for informational purposes only.  Two thoughts:  This could be a way for the Fed to determine if their is coverage in place in regards to the "no coverage penalty" or a way for the Fed to tax those "Cadillac Plans" in 2018.

The Cadillac Tax Under PPACA-Is It Discriminatory?

Under Health Reform (PPACA), in 2018 the Cadillac Tax will be implemented.  The Cadillac Tax is a 40% Tax on any amount an employer pays for Health Coverage over $10,200 for an individual and $27,500 for a family.  It would seem that this is suppose to discourage companies from offering premium health plans with all the bells and whistles.  Initially when this provision was inked, Unions and the Federal Government employees were exempt.  However, as of now, Unions have been included in the provision. 

The reason that the Cadillac Tax could be considered discriminatory, at least for small employers in the state of Maryland, is that one of the primary factors that determines cost is age.  For example: A HMO (you need to get referrals) through Carefirst with a $20 Co-pay for Primary Office Visits and $30 for Specialist Visits and a $10-$20-$30 Prescription Plan (hardly a Cadillac plan) would cost a company in Baltimore with an average age of 32, $450 for an Individual and $1260 for a family.  This same plan for a company in Baltimore with an average age of 62 would cost $918 for an individual and $2570 for a family or $11,016 per year for individual and $30,840 per year for a family.  As I understand it there are provisions made for slightly higher triggers for older age groups.  However, these rates are for 2011,  if we consider an 8% trend- increase in medical costs per year, the rate could be 60% higher than it is now, easily breaking through those trigger points simply for being an older group. 

In addition, following this logic (if there is any), this could encourage employers to hire younger employees to keep their average age down, reducing their medical premium and keeping them further away from the Cadillac Tax trigger points.  I guess this would be discrimination to avoid an arguably discriminatory provision in the law?????