Cadillac Tax Delayed: What It Means for Unions
January 21, 2016
By Louise F. Pongracz, Esquire, and Lauren Frankel, Esquire
In response to growing concerns raised by both labor and management groups, Congress passed a law in December 2015 that delayed the start of the Affordable Care Act’s “Cadillac Tax” for two years, until Jan.1, 2020.
What is the Cadillac Tax?
The Cadillac Tax is a provision of the Affordable Care Act that would impose a 40 percent excise tax on the excess of the cost of an employer-sponsored health plan over a specified threshold. The tax was intended as a disincentive for employers to offer high-cost (so-called “Cadillac”) health benefits to workers. And because unionized workplaces typically offer better wages and health benefits, the Cadillac Tax would disproportionately affect union employers and employees.
The Cadillac Tax originally was scheduled to take effect Jan. 1, 2018, but, in response to concerns over its implementation, has been postponed to Jan. 1, 2020. In the meantime, Congress has authorized a study to reevaluate whether the ACA uses appropriate age and gender benchmarks to determine the Cadillac Tax thresholds. And in the event that the tax survives this review and other likely attacks, Congress also has required that Cadillac Tax payments will be tax-deductible.
The Cadillac Tax delay is a major blow for the Affordable Care Act, as it reduces tax revenue intended to subsidize some of the law’s costs. The delay also is a win for unions and their members, as it lessens the ACA’s considerable downward pressure on health insurance costs and member benefits.
What does the Delay Mean for Collective Bargaining?
First, unions that already have agreed to Cadillac Tax re-openers may have dodged a bullet, assuming that your CBA doesn’t extend after Jan. 1, 2020. But be sure to review your Cadillac Tax language carefully, as broadly drafted re-opener provisions may remain effective even in light of the two-year delay. (Note: Always work with legal counsel when drafting CBA language!)
Second, notwithstanding the delay, unions still should anticipate proposals to include Cadillac Tax provisions, as employers have been trying to include such language since at least 2011 and likely will keep pushing. On this issue, tread carefully. Because the future of the Cadillac Tax is so uncertain, it will be difficult to assess the value of either benefit concessions or re-opener provisions related to a tax which may never materialize.
Third, Cadillac Tax or no Cadillac Tax, the increased costs of health benefits will remain central in every negotiation. Costs for medical coverage are rising after a period of relative stability, and costs for prescription coverage are increasing at an even greater rate. Before considering any proposed benefit adjustments, be sure to ask the employer for the kind of detailed medical and prescription history and renewal data that will allow you to evaluate whether any steep increase is necessary. Also, make sure you are equipped to investigate all of the options.
The labor and employee benefits attorneys at Willig, Williams & Davidson are ready to help your union craft bargaining proposals, evaluate employer proposals, and keep your members abreast of the changes in the health care markets and the law. If you have questions about healthcare in collective bargaining, and how we can help, please contact us at (215) 656-3600.