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Health Insurance Excise Tax Delayed for Two Years


The budget deal passed by Congress at the end of 2015 included a two year delay to the ACA’s excise tax on high cost health care plans – the so-called “Cadillac” tax – originally slated to take effect in 2018 and now delayed until 2020. The deal passed notwithstanding an earlier threat by President Obama to veto any deal that chipped away at the tax. The deal was reached under heavy pressure from unions, business groups, insurance companies, and others, ultimately receiving wide support from both Democrats and Republicans.

The excise tax will impose a 40% penalty tax on employers for health care plans valued in excess of certain thresholds - $10,200 for an individual or $27,500 for full family coverage (higher thresholds apply for certain types of high risk professions). The deal creates more uncertainty as to whether the tax will eventually go into effect or be permanently repealed.

Many employers have attempted to reduce health care benefits in anticipation of the excise tax going into effect. Delay of the excise tax temporarily eliminates this justification for making painful cuts, enabling unions to protect hard fought benefits for their members against rollbacks.

Unions facing negotiations over health care plans should therefore be aware of this development and its impact on bargaining. To the extent contract negotiations address the excise tax, notwithstanding the reprieve, unions should consider seeking legal advice concerning tactics at the bargaining table, and issues such as reopener clauses, unbundling plan components, etc.