Second Opinions

SECOND OPINIONS: Questions on ACA ‘Cadillac Tax': Part II

Experts from Groom answer questions for employers about the Patient Protection and Affordable Care Act (ACA).

By PS | December 03, 2014
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Internal Revenue Code section 4980I, as enacted by the Patient Protection and Affordable Care Act (ACA), imposes a 40%, nondeductible excise tax on employers, health insurance issuers, and/or other entities administering health plan benefits if the aggregate value of applicable employer-sponsored coverage exceeds a specified annual dollar limit. 

The tax is referred to by some as the “Cadillac Tax.”  We previously answered questions we received regarding the Excise Tax. Below are responses to additional questions we have received regarding the Excise Tax.

What is the annual dollar limit? 

The “annual limitation” is a dollar threshold based on numerous factors and adjusted for inflation.  For 2018, the general dollar threshold is $10,200 for self-only coverage, and $27,500 for coverage other than self-only coverage, but the dollar thresholds are multiplied by a “health cost adjustment percentage” under which the thresholds could be increased if health care inflation (measured based on the cost of the Blue Cross/Blue Shield standard benefit option under the Federal Employees Health Benefits Plan) from 2010 to 2018 exceeds 55%.

The dollar threshold is also increased for:

  • An age and gender adjustment;
  • “Qualified retirees,” defined as an individual who is receiving coverage by reason of being a retiree, has attained age 55, and is not entitled to benefits or eligible for enrollment under the Medicare program under title XVIII of the Social Security Act;
  • Individuals who participate in “a plan sponsored by an employer the majority of whose employees covered by the plan are engaged in a high-risk profession or employed to repair or install electrical or telecommunications lines.” The term high-risk profession means certain law enforcement officers and employees in fire protection activities, individuals who provide out-of-hospital emergency medical care, certain individuals whose primary work is longshore work, and individuals engaged in the construction, mining, agriculture (not including food processing), forestry, and fishing industries. The term also includes an employee who is retired from a high-risk profession if such employee satisfied the requirements for a period of not less than 20 years during the employee’s employment;
  • Participants in a multiemployer plan (as defined in Code section 414(f)), who are treated as always having coverage other than self-only coverage (i.e., having the $27,500 dollar threshold).

 

In 2019, the thresholds are indexed for inflation based on increases in the Consumer Price Index for all-urban consumers (CPI-U) plus one percentage point (rounded to the nearest $50) and starting in 2020, the threshold amounts are indexed to the CPI-U (rounded to the nearest $50).

 

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