I have long followed the developments of the Patient Protection and Affordable Care Act (“PPACA,” the “ACA,” or colloquially, “Obamacare”), from its origins as a conservative, state-based, market-oriented insurance reform tool designed to combat rising healthcare costs, to its being championed and eventually passed into law by liberal legislators under President Barack Obama, to the various efforts by conservative politicians to repeal it. The road the ACA has followed, the economic and societal impacts it has generated, has been fascinating, to say the least. Throughout its existence, little consensus has been reached on its efficacy. However, one element that has been, by-and-large, universally agreed to is this: The ACA is a flawed set of regulations. What to do about those flaws has been wildly debated.
As I mentioned, although often mischaracterized as healthcare reform, the ACA is, at its core, an effort to reform health insurance. The overly-simplified justification for its passage was that because (1) healthy people were not paying into the health insurance market system and (2) uninsured poor people were utilizing expensive healthcare services (emergency rooms, treatments for preventable and costly illnesses, etc.), that (3) health insurance costs (often conflated with healthcare costs) were rising too quickly. The ACA sought to impose a market-based carrot-and-stick approach to battling these rising health insurance costs. Some of the carrots (the benefits that would accrue to consumers/constituents) included forcing certain employers to expand their health insurance offerings, creating an online marketplace for insurance companies to transparently sell their plans, requiring insurance companies to offer certain minimum services (thereby combatting the fine-print service exclusions known to bankrupt families), and imposing annual out-of-pocket maximums into insurance plans so that, again, consumers would be less likely to go into bankruptcy if a medical emergency occurred.
In order to pay for these carrots, the federal government created certain “sticks.” The ACA mandated that all individuals either purchase insurance (or maintain insurance coverage in some manner) or pay a tax. An additional tax was imposed onto employers for failing to comply with certain regulatory requirements. Also, and, of particular interest to this blog, employers offering certain “deluxe” insurance plans (the premiums of which had historically been and continue to be tax deductible to the employer) would be taxed over a certain threshold of cost, a tax known as the “Cadillac Tax.” These carrots and sticks were to be phased in over an extensive period of time to provide consumers, business owners, insurance companies, and healthcare providers time to adjust to these regulations.
Almost immediately following the passage of the ACA in 2010, the Cadillac Tax was identified as incredibly unpopular and came under attack from both conservative and liberal politicians. One of the primary reasons for this scrutiny was that market and insurance analysts could clearly demonstrate that by the time the Cadillac Tax would take effect (originally 2018), numerous employer-provided insurance plans that were not, in fact, terribly generous, would cross the threshold necessary to become subject to the Cadillac Tax, an outcome the original advocates of the ACA never envisioned. In 2015, Congress passed the first delay of the Cadillac Tax implementation, pushing the effective date from 2018 to 2020. It was widely understood that the Cadillac Tax would either need to be fixed or repealed. However, efforts to fix the ACA have been stifled in Congress. Nevertheless, in January of 2019, Congress again kicked the can down the road, delaying the Cadillac Tax’s implementation until 2022.
Closure on the Cadillac Tax’s state-of-limbo now appears within sight. This week, the House of Representatives, by a vote of 419 – 6, passed the repeal of the Cadillac Tax. The repeal must now go before the Senate and then to the President. Given the rare bi-partisan support for this initiative, definitive action looks not only possible, but likely.
For employers, this is welcome relief from uncertainty and potential additional taxes. That said, employers should not rest on their laurels. Employers that have attained Applicable Large Employer status are still required to comply with the ACA’s Employer Shared Responsibility provisions. These rules, and their interpretation, are regularly in flux and should be monitored with a close eye. For example, a new Department of Labor (“DOL”) rule set to take effect in January of 2020 will permit employers of all sizes to reimburse individual employee insurance premiums if acquired through the marketplace, a practice which had been prohibited after the initial passage of the ACA. Therefore, working with trained insurance brokers, tax professionals, and legal counsel is crucial to staying in compliance with the ACA and minimizing employer tax exposure.
This article does not constitute legal nor tax advice, and the reader should consult legal counsel to determine how this information applies to any specific situation.
Attorney Joe Camilli practices at Neider & Boucher, S.C. in the firm’s business team. He has a master’s degree in Applied Economics from Marquette University and studied healthcare law at Hamline University School of Law, acquiring his Juris Doctorate in 2012, two years after the passage of the ACA. If you have any questions regarding this article, please contact Joe Camilli at Neider & Boucher, S.C. at 608-661-4500.