Cadillac Tax

NATaT Supports a Repeal of the Affordable Care Act’s “Cadillac Tax” and Efforts to Allow Employers with Less than 50 Employees to Provide Health Reimbursement Arrangements Without Penalty

Small Business Healthcare Relief Act

The Small Business Healthcare Relief Act, H.R. 2911/S. 1697, would roll back existing Treasury and Department of Labor guidance issued under the authority of the Affordable Care Act (ACA) prohibiting the use of Health Reimbursement Arrangements (HRAs). This bipartisan bill would restore flexibility and choice into the marketplace by:

  • Ensuring that small businesses and local municipalities with fewer than 50 employees are allowed to continue using pre-tax dollars to give employees a defined contribution for healthcare expenses.
  • Allowing employees to use HRA funds to purchase health coverage on the individual market, as well as for qualified out-of-pocket medical expenses, if the employee has qualified health coverage.
  • Protecting employers from being financially penalized for providing this cost-sharing option to employees.

Employers with 50 or fewer employees are not subject to the ACA’s employer mandate requirement to provide coverage to their employees; however, many would like to provide some level of financial assistance to employees for healthcare-related costs. The Small Business Healthcare Relief Act would allow smaller businesses and local governments to use pre-tax HRAs to financially assist employees with the purchase of health coverage and related costs. While many are not required to do so, towns and townships want to do everything we can to help our hard-working employees obtain coverage or help pay their medical bills.

Cadillac Tax

The Cadillac Tax is a provision in the ACA that will impose a non-deductible 40 percent excise tax on the amount of employer-sponsored coverage that exceeds statutorily established thresholds. It applies to all employers, public and private, and is expected to impact health coverage provided to employees as employers implement changes to avoid the tax. The Consolidated Appropriations Act was signed into law on December 18, 2015 (P.L. No. 114-113), and included a two year delay on the Cadillac tax, which will now be imposed in 2020.

Various changes are expected from local governments to avoid the Cadillac tax:

  • Some will stop offering their own healthcare plans and switch their employees to the ACA insurance exchange. However, if a local government stops offering a healthcare plan, it would have to pay a penalty of up to $3,000 per full-time employee (minus the first 30 employees). In turn, its employees would likely pay a larger portion of their insurance premiums on these exchanges than they do under their current plan.
  • Some will introduce less attractive plans for employees that are much less costly for the employer; or will increase cost sharing by increasing deductibles, out-of-pocket limits and co-pays.
  • To help defray these healthcare premiums on the new exchanges, some employers have proposed to provide their employees with cash payments through a healthcare reimbursement account. However, according to the Departments of Treasury and Labor, HRAs are considered to be group health plans and subject to related ACA reforms. Since HRAs are not traditional health insurance, but a means to obtain insurance on the individual market and/or offset health care expenses, the Treasury and DOL maintain that HRAs do not meet the group health plan requirements, and will fine an employer $100 per day for each employee. (See Small Business Healthcare Relief Act, S. 1697/H.R. 2911.)

NATaT supports Congressional efforts to repeal this tax, including S. 2045, the “Middle Class Health Benefits Tax Repeal Act of 2015,” introduced by Senators Dean Heller (R-NV) and Martin Heinrich (D-NM); and S. 2075, the “American Worker Health Care Tax Relief Act of 2015,” introduced by Senator Sherrod Brown (D-OH). S. 2045 would repeal the excise tax while S. 2075 would also repeal the tax, but also includes a non-binding “Sense of the Senate” clause demanding that any repeal include an offset (as the revenue from the tax will be used to help pay for the cost of the ACA).

To learn more, download the full policy paper.