{"id":839,"date":"2016-08-04T19:06:27","date_gmt":"2016-08-04T19:06:27","guid":{"rendered":"https:\/\/albanknews.com\/?p=839"},"modified":"2016-08-05T12:38:23","modified_gmt":"2016-08-05T12:38:23","slug":"cadillac-tax-update","status":"publish","type":"post","link":"https:\/\/albanknews.com\/?p=839","title":{"rendered":"Cadillac Tax Update"},"content":{"rendered":"

IRS published a notice late last year to the effect it was beginning to work on proposed regulations for the Cadillac Tax. That notice[1]<\/a> \u2013 24 pages in length \u2013 outlined issues that would be in need of address and asked for public comment. After reading this document, we can only hope that sound minds in Congress will repeal this PPACA provision. If it takes IRS 24 pages to identify all the questions it has internally, one can only imagine the extent of final regulations and the degree of complexity.<\/p>\n

Background<\/u><\/strong><\/p>\n

PPACA created IRS Code \u00a74980I \u2013 Excise Tax on High-Cost Employer Sponsored Health Coverage<\/em>; affectionately pegged the \u201cCadillac Tax\u201d. The mandate is to levy a 40% excise tax on employer-provided health plans premiums above a baseline. \u00a74980I\u2019s intent was to target rich executive benefit plans.<\/p>\n

Current Status<\/u><\/strong><\/p>\n

The authors of the legislation thought it appropriate go after gold-plated executive health plans. Indeed, these ACA engineers repeatedly referenced a specific Goldman Sachs executive health plan as prototypical of their target. When PPACA was signed, an enormous roar of protest ensued \u2013 but not from Wall Street as one might expect. Rather, the most vocal protestors were the labor unions! In response, the Administration quickly delayed the effective date of the Cadillac Tax until 2018. Then, in the budget bill passed by Congress and signed by the President last December, it was put off another two years; until 2020.<\/p>\n

The reality is that this draconian tax will impact middle-income Americans as well; for it is not just the premium that is tested as excessive, there is a laundry list of items that get swept into the \u201caggregate cost of applicable coverages.\u201d Some plans in some zip codes are already within the Cadillac Tax range. It would appear, from all we read, this is one thing Congress might agree on across party lines; that the Cadillac Tax needs to go. Repeal bills have surfaced in both houses. However, it is not that simple. $87 billion of revenue is anticipated in its first seven years[2]<\/a>; revenue essential to Obamacare financing. It is in fact one of its financial linchpins. That revenue loss will have to be replaced before repeal can be considered.<\/p>\n

Hopefully the Cadillac tax will never see the light of day; and even though unpopular on both sides of the aisle, it would be ill-advised to simply assume this exaction will not survive. Employers should begin to look ahead and plan accordingly.<\/p>\n

How is the Tax Calculated?<\/u><\/strong><\/p>\n

The Cadillac tax is 40% of the excess of the \u201caggregated cost of applicable coverages\u201d over a baseline.<\/p>\n

What is the Baseline?<\/u><\/strong><\/p>\n

The baseline identified in PPACA with passage in 2010 was $10,200 for single coverage and $27,500 for anything other than single. This baseline amount will be indexed for health insurance premium inflation until its effective date. IRS has talked about indexing to the federal government PPO plan or a national premium index. Once effective, the baseline will then be indexed to inflation. Further, the baseline can be increased based on age, gender, and higher-risk occupations. In this regard the plan must fall \u201cpredominantly\u201d in a category. For example, a plan for which participants are predominantly pre-age 65 retirees; or one covering law enforcement officers predominantly; or one with a predominantly female population.<\/p>\n

What is Included in the Aggregated Cost of Applicable Coverages?[3]<\/u><\/strong><\/a><\/u><\/strong><\/p>\n

Basically, anything that is not included in the employee\u2019s taxable income\u2026.<\/p>\n