On Wednesday July 17th, the House of Representatives voted to repeal a provision of the Affordable Care Act called the “Cadillac tax” via the Middle Class Health Benefits Tax Repeal Act of 2019 (H.R. 748). Legislators have twice voted to delay the tax, which is set to take effect in 2022. The goal of the Cadillac tax is to reduce the overall amount spent on health care by limiting an employer’s ability to abuse tax laws that remove income tax obligations for health insurance spending and curbing employee overuse of medical services.
While the Cadillac tax was intended to only affect high-cost plans, critics have stated the impact will be much broader than anticipated. SHRM has long opposed the adoption of the Cadillac tax, stating that in addition to high-value plans, “…modest plans will also be impacted, meaning more than 181 million Americans and their families could face higher copays and deductibles, causing some to decline employer-provided health care.”
The tax takes effect after plan costs reach $10,200 for single coverage and $27,500 for families. Varying benefits count toward the overall plan cost, including all contributions to FSAs and HSAs, as well as employer contributions to HRAs. Many fear the tax will deter employers from providing and supporting these types of accounts. If the tax is repealed, employers can continue to provide FSA, HAS, and HRA contributions free from penalties. According to SHRM’s 2019 Employee Benefits Survey, many employers are already making changes to their health benefit plans to evade the potential increase in tax liabilities. An emerging trend shows employers moving toward high-deductible plans that transfer more health care costs to the employee while reducing employer spending.
The bill now moves on to the Senate, where it must be passed before being signed into law.
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