PPACA Cadillac plan tax: Who pays what?
Public employers are starting to get a clearer idea of what the dreaded Cadillac plan excise tax might look like.
Section 4980I of the Internal Revenue Code (IRC), a tax-law created by the Patient Protection and Affordable Care Act of 2010 (PPACA) is set to impose a 40 percent tax on the "excess value" of employer-provided, high-value health benefits packages starting with taxable years beginning on or after Dec. 31, 2017.
In the first year, the tax will apply to employee-only benefits with a value over $10,200, and family benefits with a value over $27,500. The thresholds for enrollees in retiree health plans and workers in high-risk professions may be higher.
Many economists and tax policy specialists like the Cadillac plan tax concept, because they see taxing high-value plans as a good way to mobilize employers and health insurers to do more to control health care costs, rather than simply passing on increases in the underlying costs to customers.
See also: View: Whining Harvard professors experience Obamacare Jane Gravelle, an economic policy specialist at the Congressional Research Service, recently testified before the Senate Finance Committee, for example, that the Cadillac plan tax will also help reduce the distortion in the health care and health insurance markets created by the exclusion of the value of employer-provided health benefits from employees' taxable income.
The Internal Revenue Service (IRS) recently hinted what at least part of Cadillac plan tax implementation might look like in IRS Notice 2015-16, a document that talks about how the IRS might define the types of coverage affected by the tax and determine the cost of the coverage.
Accounting experts at PricewaterhouseCoopers said in a comment on the notice that the IRS did not give employers the information they need to prepare to administer the tax, let alone to minimize exposure to the tax.
Comments on the IRS notice are due May 15. Actuaries at Milliman have suggested that group health plan sponsors and administrators consider looking at the notice, thinking about the effects of the excise tax, and submitting comments.
One challenge is that employers have had a vague sense that the tax is coming, but not necessarily how big, or small, the bill would be.
In Connecticut, for example, eBenefits Group Northeast L.L.C. has put an ad in a directory published by the Connecticut Conference of Municipalities featuring a photo of a frightened driver and the headline, "Don't let the Cadillac Tax drive your benefits into a dead end... Let us steer you in the right direction."
Both private and public employers are wrestling with the issue, but government employers are doing much of their wrestling in public.
Stafford County, Virginia, notes in its proposed budget for fiscal year 2016 that, if it does not change its health benefits, it will probably have to pay the excise tax for 2018, but it does not give an estimate of how much it will pay.
For a look at some recent estimates of what various government employers, and all employers in one New England state, might pay, read on.
California Public Employees' Retirement System (CalPERS)
CalPERS officials have looked at the issue by estimating how much the excise tax would be for the high-value health plans already available through CalPERS.
In the San Francisco Bay area, for example, one plan with 4,886 single-only enrollees already has a total annual premium cost that's $946 above the Cadillac plan tax value threshold. For all enrollees in that plan, the total cost of the excise tax would be about $1.8 million, officials say.
There are a total of four high-value plans available, and, if the excise tax applied today, the total CalPERS Cadillac plan tax tab could be about $3.8 million, officials say.
State of Florida
Actuarial consultants from Foster & Foster told a state Senate committee in Florida this week that, if state of Florida health benefits and cost trends stay roughly the same, Florida will pay about $9.1 million to $14.6 million in Cadillac plan taxes in 2018, and that the cost will rise to $55.3 million to $243.5 million in 2023.
New Jersey Public Employees' Retirement System (PERS)
The New Jersey Pension and Health Benefit Study Commission says the annual excise tax payment for the New Jersey retiree health benefits program could start at $58 million in 2018 and rise to $284 million by 2022.
Analysts in the Vermont Legislative Joint Fiscal Office say one estimate suggests that Vermont employers of all kinds could pay about $9 million in Cadillac plan taxes in 2018, and that an economist estimated separately that Vermont employers could pay $24 million in excise taxes.
In 2023, if benefits stay the same, the excise tax bill could rise to $40 million, the analysts say.
See also: Republicans propose group health exclusion cap
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|Publication:||National Underwriter Life & Health Breaking News|
|Date:||Mar 12, 2015|
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