The Cadillac Tax: What Hospitality Employers Need to Know

Although the Cadillac Tax is still more than two years away from taking effect, unionized hospitality employers need to consider the implications of the Cadillac Tax in negotiations for collectively bargained plans under contracts extending past Jan. 1, 2018. Ideally, employers should look to add a provision that allows them to make any necessary changes to the health plan to eliminate Cadillac Tax liability. However, this may face significant resistance and may not be feasible for many employers. An alternative that may be more amenable to unions is to include a reopener provision that would reopen contract talks on health benefits at some point before 2018.

In upcoming labor contract negotiations, many unionized employers will likely broach the idea of trimming health benefits. While unions will almost certainly oppose this, given the significant liability that some employers potentially face, resources that will need to be used to pay the tax are resources that could otherwise have been redirected to create a more generous overall economic package for employees. Employers and unions may reach a mutually beneficial arrangement by bolstering other benefits, such as stand-alone dental and vision coverage, which do not factor into the cost of coverage for purposes of the Cadillac Tax. In any event, employers exploring the curtailing of health benefits at contract negotiations will need to keep in mind the ACA’s 60-percent minimum value standard as a floor or otherwise face potential liability under the employer mandate. However, given the relative richness of most union health plans, this is not likely to be an issue.