An Appropriations Act signed into law by President Obama, on December 20, 2015 delays the effective date of the Excise Tax on High-Cost Employer Sponsored Health Coverage (aka the “Cadillac Tax”) for two years, from 2018 until 2020.
The Cadillac Tax is a 40% tax imposed on the cost of healthcare coverage. In 2020, if a Union plan costs more than $27,500 a year, (this amount may be increased by 2020), everything over that limit is taxed at 40%. For example, if in 2020, the plan costs $30,000 per year, that’s $2,500 over the $27,500 Cadillac threshold. The Plan will have to pay a tax of 40% of $2,500 = $1,000 per member.
This delay is good news for unions as the Cadillac Tax, when and if it goes into effect, will make it harder for unions to keep negotiating for strong benefits because it adds a huge tax burden to the cost of the plan. The tax will also give employers even greater reason to try to withdraw from union plans and cut benefits.
The delay of the Cadillac Tax had strong bipartisan support as well as support from major corporations, unions, and insurance companies that have joined together to formally campaign against the tax. These groups have said they will continue to lobby Congress for its repeal. As both the Republican and Democratic presidential candidates have publicly said they will support a repeal of the tax, the current conventional wisdom is that the tax may be repealed entirely after the 2016 election.
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