Implementation of a tax provision within the Patient Protection and Affordable Care Act, 42 U.S.C. § 18001 et seq. (ACA), has been delayed until 2020 so that Congress has more time to consider it. The tax, often referred to as the “Cadillac tax,” is an element of the health care law that forces companies to pay a sizeable tax for employer health care plans that are deemed expensive.

This change, which was signed into law at the end of 2015, delays implementation of the Cadillac tax for two years, from 2018 to 2010, and also suspends the ACA medical device tax for two years, and delays an ACA tax on all private health insurance plans for another year.

The Obama Administration’s stated purpose of the Cadillac tax is to lower health care prices over time by creating a disincentive for high-priced health insurance policies. This provision places a 40 percent tax on every dollar of a health insurance plan that is over the inflation-adjusted price threshold in order to cause insurance companies to lower the overall prices of their health care plans and make employers less likely to offer their employees expensive plans. The future of this tax is uncertain, as both conservative and liberals in Congress have expressed opposition to it.

The Cadillac tax has been criticized as interfering with labor union negotiations. There is a concern that unions will have to negotiate for higher wages for their members instead of better health care benefits since the Cadillac tax penalizes expensive health care plans. Further, the threshold is adjusted for standard inflation instead of inflation rates for medical costs, which increase quicker. However, others see the Cadillac tax as providing necessary funding for the ACA and helping to reduce overall medical prices.

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