HR Management & Compliance

White House, Organized Labor Reportedly Make Deal on ‘Cadillac’ Tax

The White House reportedly reached a deal with organized labor on Thursday over the controversial “Cadillac” tax found in the U.S. Senate’s health care reform bill. The original provision in the Senate’s Patient Protection and Affordable Care Act (H.R. 3590) creates a tax on employer-sponsored high-end “Cadillac” coverage. Under the original provision, the tax would have been 40 percent of the “excess benefit” of plans that exceed the thresholds of $8,500 for individual coverage and $23,000 for family coverage.

This tax would have a big effect on employers because even though coverage providers would be responsible for paying the tax, employers would have to calculate the tax, determine how much of it each coverage provider is responsible for paying, and inform the coverage providers about their share of the cost. Employers would also be penalized if coverage providers didn’t pay the correct amount.

Many members of the U.S. House of Representatives (who did not include a similar provision in the House’s health care reform bill) and organized labor have been strongly opposed to the tax. President Barack Obama, however, declared support for the tax and indicated that he wanted it to be included in a final health care reform bill. After meetings between White House officials and organized labor leaders, a compromise on the tax has reportedly been reached.

Under the compromise:

  • The original thresholds would be raised to $8,900 for individual coverage and $24,000 for family coverage;
  • Dental and vision coverage would be exempted from the tax beginning in 2015.
  • Plans that were reached through collective bargaining agreements and plans covering state and local government employees would be exempt from the tax until 2018 (five years after the legislation would take effect).
  • Adjustments would be made to the thresholds for plans that cover a significant number of women and older employees.

Members of Congress and the White House are currently working to reconcile the health care reform bills passed by the House and the Senate. If an identical bill is approved in both chambers, it will go to the President to be signed into law. The President has indicated that he wants to sign a health care reform bill before his State of the Union address, and many have speculated that the address will take place in late January or early February.


Keep up with the latest legal changes affecting employer benefits and trends in employee benefits with the Benefits Complete Compliance and with changes in federal employment laws in the Federal Employment Law Insider.

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