Federal Budget Bill to Delay ACA’s Cadillac Tax & Suspend Two Other Taxes

Federal Budget Bill to Delay ACA’s Cadillac Tax & Suspend Two Other Taxes

On Dec. 18, 2015, the U.S. Congress passed a federal budget bill for 2016 that makes significant changes to three tax provisions under the Affordable Care Act (ACA). This federal budget bill would:

  • Delay implementation of the ACA’s Cadillac tax on high-cost group health coverage for two years, until 2020;
  • Impose a one-year moratorium on the collection of the ACA’s health insurance providers fee, for 2017; and
  • Impose a two-year moratorium on the ACA’s medical device excise tax, for 2016 and 2017.

President Obama is expected to sign this legislation into law shortly. The provisions affecting these three ACA taxes will take effect immediately, once the bill is enacted.

Cadillac Tax Delayed

The ACA imposes a 40 percent excise tax on high-cost group health coverage, also known as the “Cadillac tax.” This tax is intended to encourage companies to choose lower-cost health plans for their employees, but also to raise revenue to fund other ACA provisions.

This provision taxes the amount, if any, by which the monthly cost of an employee’s applicable employer-sponsored health coverage exceeds the annual limitation (called the employee’s excess benefit). The tax amount for each employee’s coverage will be calculated by the employer and paid by the coverage provider who provided the coverage.

Although originally intended to take effect in 2013, the Cadillac tax was immediately delayed until 2018 following the ACA’s enactment. The 2016 federal budget bill would further delay implementation of this tax for an additional two years, until 2020.

The budget bill would also:

  1. Remove a provision prohibiting the Cadillac tax from being deducted as a business expense; and
  2. Require a study to be conducted on the age and gender adjustment to the annual limit.

There is some indication that this additional delay will lead to an eventual repeal of the Cadillac tax provision altogether. However, while several bills have been introduced into Congress to repeal this tax, President Obama has indicated that he will veto legislation repealing any ACA provision.

To read more about the new Federal Budget Bill, please click here.

If you have questions regarding the new Federal Budget Bill, please contact your Kistler Tiffany Benefits’ Employee Benefits Consultant.