Will the Affordable Care Act be repealed?
The results of the 2016 presidential election are likely to have a big impact on federal tax policy in the coming years – especially as it relates to the Affordable Care Act. To get a sense of what changes might be on the way, the Journal of Accountancy recently spoke with Eddie Adkins, CPA, a partner in the Washington National Tax Office at Grant Thornton, about the future of the ACA.
One of the most unpopular provisions of the Affordable Care Act—across the board, no one liked this—is the so-called Cadillac tax, a 40% tax on high-value plans. So if the value of a plan exceeded a certain threshold, the amount over the threshold was subject to a 40% tax. That had originally been planned to go into effect in 2018, and it was delayed until 2020. Well, now it’s very likely that will go completely away. So that’s good news for employers and employees alike, because both parties would bear the cost of that.
However, I do think it’s important to point out that part of the House plan for health care reform is to place a cap on the amount of tax-free health benefits that an employer can provide to an employee. The thought behind that is that right now it’s unlimited. So no matter how valuable health coverage is that’s provided to employees, it’s tax-free. And the Republicans in the House feel that that leads actually to premium increases, or the cost of health care increases, because it’s sort of a blank check.
So their thought is that, there will be some threshold, over which the benefit will be taxable to the employees. We don’t know what that threshold is. They have said that it will be a threshold high enough that it really will not impact many individuals. It will primarily just impact individuals—employees—who have really, really high-value coverage. So it remains to be seen what that’s going to look like, but that’s important because from an employer perspective, employers will really have to think about that.
If they are providing really high-value benefits, do we maybe want to cut that back? Because the employees are going to be taxed on it. And it becomes sort of phantom income, because it’s not cash the employees are getting, yet they’re being taxed on it, and that’s generally not a favorable thing to have happen, so I think that will get a lot of attention and will be important for employers to focus on.
But we have to stay tuned. We don’t really know. In particular, we don’t have any idea what that threshold may look like.