ACA Cadillac Tax: Essential Issue for 2015 Labor Contract Negotiations

Written by Scott M. Wich

As the Affordable Care Act (“ACA”) continues to be rolled out, a costly mandate looms on the not-so-distant horizon. Beginning in 2018, the so-called “Cadillac tax” will be implemented for high-value health plans. Despite the significance of the tax, many employers remain unprepared. A recent survey by Aon Hewitt revealed that the executive leadership and finance teams at one of every three U.S. companies have “limited or no knowledge of the implications of the [ACA Cadillac] tax for their organizations.” For unionized employers, consideration of the ACA Cadillac tax is an urgent matter that should not be deferred.

What Is It?

Beginning in 2018, a nonrefundable excise tax of 40% will be imposed on “high value” health plans (i.e., for most plans, those that have an annual coverage cost in excess of $10,200 for individuals or $27,500 for families).

Does My Company Really Need to Be Concerned?

Yes. The Cadillac tax has been recently described as more of a “Camry” or “Chevy” tax. An Ernst & Young representative recently commented at a meeting of the American Bar Association’s Joint Committee on Employee Benefits that even ACA-silver tier plans, depending on geographic location, could be subject to the excise tax soon after 2018 due to the tax’s thresholds being tied to the general CPI-U, rather than the faster increasing index of health care costs. According to a recent Towers Watson survey, 54% of employer plans will trigger the excise tax by 2020 if current health care benefit strategies remain unchanged.

Can I Put This Off?

According to a recent report released by Aon Hewitt, 25% of employers have yet to determine the impact of the ACA Cadillac tax on their health plans. Employers who will be negotiating new three year contracts in 2015 do not have the luxury of deferring consideration of this issue as the Cadillac tax will begin before the expiration date on such contracts. Further, at present, there is no significant effort underway for a repeal of or delay to the excise tax. Simply stated, employers that enter into new labor contracts without consideration of the ACA Cadillac tax will do so at their own peril.

What Do I Need to Do?

Most importantly, employers with upcoming union contract negotiations need to consider the ACA Cadillac tax issue now. A number of strategies are available to limit or eliminate potential exposure to the tax. However, the approach to the issue will depend on a company’s individual circumstances and immediate bargaining goals. The most significant point is to develop an effective plan for addressing the ACA Cadillac tax before commencing negotiations for a labor contract that will bring your company into 2018 or beyond.

If you have any questions about this article, please contact the author or your Clifton Budd & DeMaria attorney.

About the Author
Scott M. Wich
Mr. Wich is a regional attorney focusing on providing local, regional and national clients with services concerning management-related labor and...
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