On January 22, 2018, legislation enacted as part of the effort to end the shutdown of the federal government also unexpectedly delayed the effective date of the Affordable Care Act’s “Cadillac Tax” until 2022. The tax, which had been set to take effect in 2020, will be imposed on the amount that the annual cost of employer-sponsored coverage is over $27,500 for family coverage or $10,200 for individual coverage. For individuals in certain professions, including police and firefighters, these thresholds will be increased slightly to $11,850 for individual coverage or $30,950 for family coverage. If the cost of coverage is above these amounts, a 40% tax will be owed on the amount over the threshold. Paying the tax will benefit neither employers nor employees, and it has been strongly opposed by both employers and labor unions.
Despite the delay, employers should still push to get language addressing the Cadillac Tax into their Collective Bargaining Agreements now. Estimates indicate that a majority of employer-provided health care plans will be hit by the Cadillac Tax within a decade if not sooner. Contractual language should provide for a limited re-opener on health care in the event an employer receives notice that its health care plan costs will subject the plan to the Cadillac Tax and binding arbitration if the parties are unable to reach an agreement so that an arbitrator can impose changes that will avoid the tax. Without such language a union could potentially refuse to bargain over health care plan changes while a CBA is in place, leaving the employer with no defense to the tax. If an employer already has such language, it should review the language carefully to insure that any language that refers to a specific year or requires the employer’s plan to be subjected to the Cadillac Tax in any specific year, such as 2018, is eliminated.
By: David E. Mitchell, Esquire, Campbell, Durrant, Beatty, Palombo & Miller PC