Why CDHPs should be carved out from Cadillac tax

Commentary: Representing thousands of employers over the past 35 years, ECFC is actively working to convince Congress to revise the excise tax, commonly referred to as the Cadillac Tax – sooner rather than later. It is calling now on Congress to carve out consumer-directed health plans from the tax, as these plans have proved to be one of the most effective ways to reduce health care costs.

The controversial tax was designed to rein in health care costs overall and to provide funding for the Affordable Care Act. In Congress, efforts to repeal the tax have been supported by Republicans and Democrats in both houses. On Sept. 29, Democrat presidential candidate Hillary Clinton called for repeal of the tax – the same day that House Ways and Means Committee Chairman Paul Ryan of Wisconsin introduced legislation to repeal the tax, which was approved by the Committee and will be considered by the full house in October.

Also see: Will Cadillac tax steamroll FSAs?

Legislation to repeal the tax outright looks unlikely to be supported by President Obama, who has been advised the repeal would result in an $87 billion budget hole toward the cost created by the Affordable Care Act.

Also see: Support heats up for Cadillac tax repeal

Because of the adverse impact of the tax on consumer directed health plans, ECFC is actively working to get the legislation revised so that plans, such as HSAs, HRAs and FSAs are carved out of the excise tax. The carve-out is a good compromise, enabling Americans to set aside money for their health care while allowing for control of excessive costs.

Set to take effect during the next president’s tenure, the excise tax would be a very complicated and burdensome tax on employers. As proposed, it specifically targets employer-based coverage plans as well as consumer directed health plans with premiums that exceed $10,200 a year for individuals and $27,500 for families. The 40% tax would be imposed on employers, who would likely avoid it by reducing benefits to their workers, making this a top issue for corporations and union groups alike.

Also see: ACA tweaks help small employers, but add confusion

Today, more than 100 million Americans benefit from consumer-directed health plans by having their health care costs reduced. It is ECFC’s position that it just doesn’t make sense for hard-working Americans to be penalized for trying to set aside money to pay for their health care.

While it’s not scheduled to take effect until Jan. 1, 2018, companies are analyzing the impact and making decisions now as they plan employee benefits for the coming years.

If not revised, at least 48% of employers are expected to trigger the excise tax in 2018 and 82% could be subject to it by 2023, according to some estimates, making the excise tax the rule rather than the exception. 

Also see: 4 strategies to consider now to avoid the Cadillac Tax

ECFC, an association of nearly 200 employer members, spearheads the education and advocacy of consumer-directed benefit plans, such as FSAs, HRAs and HSAs, believing these plans assist employers and employees in making good health care decisions. The topic of the excise tax is taking center stage at the association’s events where industry experts in health care legislation and ACA compliance to promote and protect consumer-directed health plans.

Bill Sweetnam is ECFC’s legislative and technical director. A leading subject matter expert on the topic, he is often lobbying on Capitol Hill and educating decision makers on how ECFC is leading the charge to revise the excise tax by requesting that CDHPs be carved out. A well-known and well-respected tax attorney with more than 30 years of experience specializing in employee benefits and compensation, his tenure includes serving as the benefits tax counsel for the U.S. Department of the Treasury and as tax counsel on the staff of the U.S. Senate Finance Committee.

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