Cadillac Tax Delayed

December’s omnibus budget package contained a measure to delay the “Cadillac Tax” provision of the Affordable Care Act that by two years. The tax on high-cost employee health plans, often referred to as the “Cadillac Tax”, imposes a 40% tax on any excess cost of health plans above certain thresholds.

Even before the delay, many employers, often with the help of their brokers, had already begun to assess whether their plans would trigger the tax penalty and make preemptive changes to avoid it. While the delay gives employers a little breathing room, it should not change the urgency to make changes to avoid the tax.

Organizations, especially those with union labor where there is much less flexibility to make changes, should look to plan design changes and cost containment initiatives that will bring their plan below the thresholds. This is especially true for employers at or near the cost ceiling as health care cost growth is expected to outpace the indexing of the statutory thresholds, placing many employers at risk for the Cadillac tax.