On December 18, 2015, President Obama signed the Consolidated Appropriations Act (“CAA”). This legislation, in part, pushes back the Cadillac tax by two years to 2020. It also deems the Cadillac tax deductible.
As a reminder the Affordable Care Act (“ACA”) imposes an “excise tax on high cost employer-sponsored health coverage”. This so-called “Cadillac tax” imposes a 40 percent tax on the “excess benefit” of “employer-sponsored coverage”, including governmental plans. The Cadillac tax is triggered when coverage becomes “excess”. The coverage is “excess” when the total premium is more than $10,200 (for single coverage) and $27,500 (for more than single coverage). These figures are increased each year.
In addition, the Cadillac tax is now tax deductible for health insurers. Prior to the CAA, insurance companies reimbursed by employers for the Cadillac tax would have such reimbursements taxed as income. Meaning, in some circumstances the Cadillac tax would cost the employer even more than the 40% tax due to the additional income tax applied to reimbursements.