No administrator of an employee health plan will have to pay the so-called Cadillac tax earlier than 2020, but arguments against the "frightfully complicated" and unpopular provision of the healthcare reform law will continue, says a legal specialist.
The provision of the Patient Protection and Affordable Care Act known as the Cadillac tax (and also known as the as high-cost plan tax, or HCPT) threatens to jolt employers and employees alike.
The tax is meant help curb the growth of healthcare costs, but in doing so, threatens the future of flexible spending accounts and will impose a 40% hike on high-value health insurance plans. An analysis by the Kaiser Family Foundation estimates that more than a quarter of employers will offer HCPTs by 2018.
Catherine Livingston is a partner at Jones Day, a Washington, DC- based law firm. She specializes in healthcare law, specifically, the Patient Protection and Affordable Care Act. Livingston spoke with me recently about Cadillac tax and other regulatory developments stemming from the PPACA and their potential impact on employers. The transcript of our conversation has been lightly edited.
HLM: What does the December 2015 Omnibus Appropriations Bill change regarding the Cadillac tax?
Livingston: The December legislation delayed the effective date on the Cadillac tax from January 1, 2018, to January 1, 2020. That means that no insurer and no administrator of an employee health plan will have to pay any tax earlier than 2020.
It also ordered a study because the tax is supposed to have adjustments. The tax works by taxing the excess over specified thresholds, which are supposed to be adjusted for certain age and gender factors. Another thing the legislation does is order a study on whether or not the thresholds should be changed in order to make them appropriate, suitable, and sensible.
HLM: What are your thoughts on the future of the Cadillac tax?
Livingston: I think we're likely to see significant debate about the Cadillac tax once the presidential election is over. It's been raised by multiple candidates as something they would like to review, if not repeal. It's certainly not popular with a wide and varied array of constituencies, from organized labor to large employers.
There is a revenue cost associated with repealing it completely, and given concerns over federal deficits and the budget, it remains unclear whether a full repeal could be achieved in the broader context of budgetary concerns. There may be a series of delays because those have a lower budget cost—they were able to do [the December] delay because they only had to pay for turning off the tax for two years.
Another significant possibility is that the mechanism gets changed. The Cadillac tax is unpopular not only because of the economic incidence of the tax, but also because it's frightfully complicated and there are many unanswered questions about how the mechanism works.
Another option that has been floated by different voices in the policy debate is to replace the Cadillac tax with a cap on the exclusion for employer-provided healthcare. That's a much more straightforward mechanism. Certain questions would still have to be answered, such as how you determine what the cost of coverage is, so that it would be known when the cap is exceeded.
But that is already underway in the guidance process that the Treasury Department and the IRS have initiated, and many other questions that arise with the Cadillac tax could be avoided.
Lena J. Weiner is an associate editor at HealthLeaders Media.