The Building Tradesman Newspaper

Friday, April 06, 2018

Cadillac Tax delayed again; should be shelved permanently

By The Building Tradesman

By Matthew Brown
Laborers Health and Safety Fund of North America

On Jan. 22, 2018, Congress passed and the president signed into law a two-year delay of the “Cadillac Tax,” changing the effective date from 2020 to 2022.

The Cadillac tax is a 40 percent excise tax on employer-sponsored health benefits valued annually at more than $10,200 per employee (or $27,500 per family). However, if the majority of covered employees in a given plan are engaged in certain high-risk professions, such as construction, the thresholds are adjusted to $11,850 and $30,950, respectively.

The thresholds are also adjusted for some eligible retirees and may be adjusted for employers whose age and gender workforce characteristics differ from the national average. The value above these thresholds is the amount subject to the 40 percent tax. This number includes employer and employee-paid premiums.

For example, a laborer who is married, has two children and receives health insurance through her employer valued at $35,950 would cost her employer $2,000 in taxes. The breakdown looks like this:
  • $35,950 (value of coverage)
  • -$30,950 (family coverage limit)
  • =$5,000 (excess value)
  • x 40 percent (Cadillac tax)
  • =$2,000 (bill to the employer for just this one employee)
The thresholds are fixed amounts and do not take into account the varying costs of health care in different parts of the country. More health care plans in high cost states such as California and New York would be subject to the Cadillac tax than those health care plans in lower cost states.

“If implemented, the Cadillac tax would force employers to either pay large penalties or reduce the health care benefits of their employees,” says Laborers Health and Safety Fund of North America  Management Co-Chairman Noel C. Borck. “This could include increasing out-of-pocket costs for workers through higher co-pays or higher co-insurance, effectively serving as a pay cut. The Laborers International Union of North America and the LHSFNA will continue to fight this flawed provision, which puts the coverage of thousands of LIUNA members at risk.”

Originally included in the 2010 Affordable Care Act, the Cadillac tax has now been delayed twice; it was also delayed for two years (from 2018 to 2020) through the Consolidated Appropriations Act of 2016.

Here is some additional information about the Cadillac Tax, via the Laborers.

*"When the Affordable Care Act went into effect in 2010, the goal was to make it easier for Americans to get quality, cost-effective health care coverage,” says LIUNA General President Terry O’Sullivan. “Now a flawed provision of the Act is threatening the coverage of millions, including thousands of hard-working LIUNA members.” That provision is called the excise tax, but it’s better known as the “Cadillac” tax.

*What is the Cadillac tax? In its simplest terms, the Cadillac tax is a penalty on employee health benefits that are valued over a certain level. The ACA sets this level at $10,200 for single coverage and $27,500 for family coverage. Any amount beyond this level is taxed at 40 percent.

*It’s easy to see why many businesses aren’t happy about the Cadillac Tax. But the Cadillac Tax affects more than just employers, the Laborers said. The Cadillac Tax leaves companies with two options: pay hefty penalties or reduce the coverage they offer. Faced with such large penalties, many employers are exploring alternatives to lower the value of their plans, such as raising deductibles or having employees pay a larger portion of their own health care costs through co-insurance or co-pays.

*In short, the Cadillac tax punishes employers who are already doing the right thing by providing their employees with excellent, affordable health care. This doesn’t make much sense when the ACA’s stated goal is “improving access, affordability and quality in health care for Americans.”

(From the March 2018 Laborers Health and Safety Fund of North America's Lifelines newsletter).