There’s been a lot of debate surrounding our nation’s healthcare laws. With the recent passage of new tax laws, you and your clients might be wondering if there are any changes to the Affordable Care Act Cadillac Tax.

Cadillac Tax: A refresher

What is it?

Employers would pay the ACA Cadillac Tax, which draws its name from “Cadillac” health plans—expensive plans offered by employers. Specifically, the ACA provides for an annual 40 percent excise tax (a tax on a purchased good) on plans with annual premiums exceeding $10,200 for individuals or $27,500 for a family. The tax would apply to the amounts exceeding these thresholds, and not the entire cost of the premiums.

What’s the purpose?

The Cadillac Tax is meant to help fund the expansion of healthcare under the ACA, as well as discourage excess health care spending and encourage lower premium plans. The idea being that this would help lower insurance costs overall.

Cadillac Tax Delayed from 2020 to 2022

When will it start?

While the ACA became law back in 2010, the Cadillac Tax has not yet become effective. Initially set to take effect in 2018, it was delayed in December 2015 to then start in 2020. Recently, Congress passed another delay, pushing the Cadillac Tax back to 2022. This was not part of the big tax reform bill, but part of a stopgap federal spending bill signed by President Trump on January 22, 2018. The delay was supported by both Democrats and Republicans.

According to Forbes: “Though it’s unlikely the Cadillac tax would’ve triggered a drop in the number of employers offering health coverage, employers did say the tax could cause companies to pare some benefits and increase worker out-of-pocket costs to pay for it. Thus, employers say they will continue to lobby for a full repeal of the Cadillac tax.”

Are standalone dental plans subject to the Cadillac Tax?

No, standalone dental plans won’t be subject to this tax once it becomes effective. Employers can strategize to offset costs and reduce the taxable amount subject the Cadillac tax by offering their employees a standalone dental plan. Vision insurance plans are also not subject to this tax.

Depending on the circumstances, employer groups who currently bundle dental and vision coverage with medical might want to consider stepping away from bundling as it will drive the plan cost higher, which could then trigger the Cadillac Tax when it’s effective.

As a benefits broker, you can strategically advise your clients to shop around for standalone dental and vision products as a way to reduce, or even avoid, the Cadillac Tax.

The information in this blog is based on Solstice's review of the publicly available materials and is not intended to provide legal advice. While we make every effort to present and update accurate information, interpretations can vary. The overviews provided here are intended as an educational tool only and should not be relied upon as legal or compliance advice. For legal advice, please contact your attorney.

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