The Future of the Cadillac Tax

Abstract

The Affordable Care Act includes a 40 percent excise tax on high-cost employer-sponsored health care coverage. Often referred to as the “Cadillac tax,” this excise tax is one of the most controversial elements of the Affordable Care Act.

Currently scheduled to go into effect in 2020, the Cadillac tax poses serious challenges and uncertainty for employers. On the one hand, recent estimates suggest that the Cadillac tax may hit as many as 20 percent of employers with health care plans in 2020. On the other hand, there is a serious question as to whether the tax will be repealed before its effective date; it is politically unpopular and faces bipartisan opposition.

This Article assesses the Cadillac tax and its future. It begins by describing the Cadillac tax. It then discusses the justifications for the Cadillac tax and its likely impact on employer-sponsored health care plans. It then considers the criticisms of the tax and proposed alternatives. Finally, it concludes with a discussion of the likely future Cadillac tax.

Keywords: Cadillac tax, applicable coverage, self-insured methods, dollar limits, employer-sponsored, luxury, tax, employer, employee, benefits, Affordable Care Act, health