Cadillac Tax Repealed: What This Means for the CDH Market

To the relief of many employers and health plans, the Cadillac tax, a controversial part of the Affordable Care Act (ACA), was repealed on Dec. 20, 2019. Pres. Trump signed the bipartisan bill after it passed the House and Senate.

The Cadillac Tax, which was set to take effect in 2022, would have placed a 40 percent excise tax on high-cost employer-sponsored health. Originally conceived to discourage the purchase of more generous health plans that would drive up healthcare costs, and to pay for expanding benefits under ACA, the Cadillac Tax increasingly became viewed as a potential burden on consumers who continue to take more responsibility for their own healthcare costs.

Implications for the CDH landscape

The repeal of the excise tax is welcome news for consumer-directed healthcare (CDH), which continues to grow in popularity. According to a report from the National Center for Health Statistics, 47 percent of those under age 65 with private health insurance enrolled in a high-deductible health plan (HDHP) in the first three months of 2018.

“With the repeal of the Cadillac Tax, employers can continue to deliver a rich variety of health plans, including CDH plans and tax-advantaged accounts.”

CDH plans are, on average, more affordable than traditional health plans, making them an attractive offering to help employers control healthcare costs. This was the case even when the fate of the Cadillac Tax remained unresolved over the past two years, leading to controversy as to how tax-advantaged healthcare accounts would continue to complement CDH plans. Under the Cadillac Tax, employer and/or consumer contributions to a health savings account (HSA), health reimbursement account (HRA) or flexible savings account (FSA) would have counted toward the plan-based limit. Fear of being saddled with a 40 percent tax could have deterred employers from offering a CDH plan. Furthermore, some employers could have reduced benefit offerings overall or passed along increased costs to employees.

With the repeal, employers can continue to design and deliver a rich variety of health plans, including CDH plans. Employees who choose a CDH plan can benefit from a more affordable coverage option, while contributing tax-free dollars to an HSA, HRA or FSA for additional savings and investment opportunity.

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