President Obama to Propose Changes to the ACA Cadillac Tax, Republicans Want to Exclude HSAs

Federal Health Care Reform, Member-Driven Practice Initiatives

President Obama's upcoming 2017 budget will propose significant changes to the excise tax on high-value employer-provided health benefits in an effort to keep the tax from either being repealed or further delayed.  In December 2015, Congress overwhelmingly voted to delay the excise tax from 2018 to 2020, and made the tax fully deductible.  In the President's 2017 federal budget proposal that will be released on February 9, the administration will propose changing the threshold for triggering the Cadillac Tax to the average premium for "gold" coverage on a state's health insurance exchange when that average exceeds the Cadillac Tax threshold under current law (i.e., $10,200 for single coverage and $27,500 for family coverage).  According to Jason Furman, chairman of the Council of Economic Advisers, the change would prevent the tax from "creating unintended burdens for firms located in areas where health care is particularly expensive, while ensuring that the policy remains targeted at overly generous plans over the long term if health costs rise faster than the tax thresholds, which will rise with the overall Consumer Price Index."  However, the proposed change would significantly complicate administering the tax for multi-state employers.  Separately, Senate Finance Committee Chairman Orrin Hatch (R-UT) and Rep. Erik Paulsen (R-MN) have introduced the Health Savings Act of 2016, which would remove Health Savings Accounts, Flexible Spending Accounts and Archer Medical Savings Accounts from counting towards the thresholds for triggering the Cadillac Tax.  The bill would also leave out of the calculation for taxation employer contributions to the accounts when the contribution is made in lieu of a higher salary.  While it is highly unlikely any changes will be made to the Cadillac Tax in 2016, the next president and Congress are very likely to consider full repeal or other changes to the tax in 2017.