Preparing for the Cadillac Tax Wednesday May 13, 2015 2:00pm 3:00pm - - PowerPoint PPT Presentation
Preparing for the Cadillac Tax Wednesday May 13, 2015 2:00pm 3:00pm EST Todays Speakers Joe DiBella Executive Vice President of the Health & Welfare Practice Conner Strong & Buckelew Phyllis Saraceni Senior Vice
Wednesday May 13, 2015 2:00pm–3:00pm EST
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Joe DiBella
Phyllis Saraceni
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Conner Strong & Buckelew’s next installment in ongoing series of webinars
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Patient Protection and Affordable Care Act (PPACA, or ACA, or HCR)
since enactment of PPACA in 2010
minority party – so can still block most legislation
Cadillac Tax
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When?
What?
exceptions) that exceeds specified limits
basis
right back to employers, and ultimately employees Duration?
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What are the income limits for coverage? There are no income limits. Tax is determined based on certain predetermined “cost of plan” threshold limits. Tax is 40% of the “cost of plans” in excess of:
With time, more and more plans will trigger Tax since law indexes thresholds to general, rather than medical, inflation.
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coverage
consumption) caused by tax preferred benefits Designed to apply to high-end health plans providing most generous benefit levels, but likely will affect more modest plans
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approach in future
their families
threshold
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How would I get a copy of the current guidance? The Cadillac Tax was added by Section 9001(a) of PPACA (see http://www.hhs.gov/healthcare/rights/law/index.html) and can be found in Internal Revenue Code Section 4980I. IRS and Treasury are just now starting Cadillac Tax rulemaking process.
some point in future (late spring/early summer?)
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Members of Congress facing pressure to support repealing, delaying, or modifying Cadillac Tax
House bill to eliminate Tax
to make up for lost revenues counted on to help pay for ACA
employers, and other groups recently held briefing on Capitol Hill for Senate staff to increase awareness of potential widespread impact if not repealed Ultimately very difficult to avoid Tax if unchanged by Congress
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with purchase of individual health insurance
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Are Medicaid eligible employees eligible for premium tax credit? Note: question is related to different PPACA tax issue under pay or play - not related to Cadillac Tax
Medicaid are generally not eligible for a premium tax credit (PTC).
not offer affordable minimum value coverage to FTEs (and dependents), employer may be subject to penalty if at least one FTE receives a PTC for purchasing exchange coverage.
Medicare or Medicaid), employer will not be subject to penalty payment.
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comment
similar to COBRA rules
coverage for Cadillac Tax purposes as well as COBRA purposes
COBRA “applicable premium” and charging for COBRA coverage
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Does the COBRA premium equivalent calculation include the Excise Tax as a cost of coverage that is passed on to COBRA participants?
included in cost):
such coverage which is attributable to the tax imposed under this section shall not be taken into account”
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Does NJ PL 2011 C.78 require that the Excise Tax be included in the premium equivalent used to calculate employee contributions? Note: question related to New Jersey law requiring all public employees to pay a sliding scale percentage of cost of health benefits for themselves and dependents.
in premium equivalent used to calculate employee contributions.
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Assumes 2018 base thresholds are $10,200 for self-only and $27,500 for other than self-only
Example:
In 2018, Pat enrolled in employer-sponsored coverage with annual cost of $11,000. Assuming no adjustments are made to annual dollar limitation ($10,200), plan administrator/employer liable for Cadillac Tax for 2018 equal to $320 [40% x ($11,000 - $10,200)] Example: Fran and family are enrolled in employer-sponsored coverage with annual cost of $28,000. Assuming no adjustments are made to annual dollar limitation ($27,500), plan administrator/employer liable for Cadillac Tax for 2018 equal to $200 [40% x ($28,000 - $27,500)]
Tax increases as cost increases:
Self-only coverage: If cost is $13,000, Tax is $1,120. If cost is $15,000, Tax is $1,920. Other than self-only coverage: If cost is $32,000, Tax is $1,800. If cost is $36,000, Tax is $3,400.
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Are you allowed to pass the Cadillac Tax on to the employees? Yes. Employers are generally free to determine percent of employee contribution/premium share for access to a component benefit (subject to discrimination and other rules). There is no requirement for an employer to justify the employee benefit contribution/share amount.
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employers may be paying out closer to 60% to cover Tax
governments
they charge employers
insurer will likely build in 60% to ensure 40% is covered after taxes
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If employer fails to correctly calculate Tax attributable to each responsible entity, and as a result entity pays too little tax, employer is subject to:
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professions, age/gender)
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Applies to all employers subject to “excise tax” provisions of Internal Revenue Code, including:
Private, for-profit employers regardless of size Tax-exempt entities Governmental entities
Applies to coverage for self-employed individuals.
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portions of two separate plan years in determining liability
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Insured Plans
Self-Insured Plans
By statute, Tax allocated among following entities on pro rata basis (based on extent of coverage):
contributions
person that administers the plan benefits” (not clear if this will be TPA
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Applies to “applicable employer-sponsored coverage”
income
insurance for which payments are excluded from gross income
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Encompasses coverage whether paid:
holder via salary reduction; but nor after-tax)
MSAs
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HRAs
by number of employees covered for period
coverage versus HRA dollars used to pay for other medical expenses
applicable coverage
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On-site Medical Clinics
consists primarily of first aid provided during working hours for condition, illness, injury occurring during workings hours; (2) care is available only to current employees; and (3) employees not charged
allergy injections, (3) nonprescription pain relievers, (4) treatment of injuries beyond first aid caused by work accidents
combination
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liability insurance
insurance for which payments are NOT excluded from gross income
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No blanket exception for “HIPAA excepted benefits”
excepted benefits should be excluded from applicable coverage
without extra premium/contribution
dental/vision qualifying as excepted benefits should be excluded from applicable coverage
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Applies to “employees.” Statute defines “employee” very broadly:
surviving children)
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Is the Tax also on retiree plans as well?
will apply to coverage for retirees as well as active employees There is no retiree-only plan exception
not apply to retiree-only plans)
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Certain additional adjustments to base thresholds permitted
high-risk professions or employed to repair or install electrical and telecommunications lines
No express adjustments permitted for geographical differences or high claims individuals
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For 2018, adjustment for pre-2018 health inflation
(HCAP)
Blue Cross/Blue Shield standard benefit option under Federal Employees Health Benefit Plan (FEHBP) for plan year 2018 (determined using 2010 benefit package for such coverage) exceeds such cost for plan year 2010
Example: If growth in cost of health care during period between 2010 and 2018, calculated by reference to growth in per employee cost of standard FEHBP coverage during that period (holding benefits under standard FEHBP plan constant during period) is 57%, the threshold amounts for 2018 would be $10,200 for self-only coverage and $27,500 for other than self-only coverage, multiplied by 102% (100% plus excess of 57% over 55%), or $10,404 for individual coverage and $28,050 for other than self-only coverage.
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For all years after 2018, annual cost of living adjustment applies
for All Urban Consumers (CPI-U), plus one percentage point, rounded to the nearest $50
rounded to the nearest $50
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Adjustment for High Risk Professions
$3,450 for other than self-only coverage (higher limits $11,850 and $30,950)
certain high-risk professions or employed to repair or install electrical and telecommunications lines
Engaged in law enforcement, Engaged in fire protection activities, Providing out-of-hospital emergency medical care, Whose primary work is longshore work, Engaged in construction, mining, agriculture (not including food
processing), forestry, and fishing industries
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Term also includes employee retired from high-risk profession, if such employee satisfied requirements for at least 20 years during employment Only applies if “majority” of plan participants are high-risk professionals
coverages
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Adjustment for Qualified Retirees
$3,450 for other than self-only coverage (higher limits $11,850 and $30,950)
retiree, (ii) has attained age 55, and (iii) is not entitled to benefits or eligible for enrollment under the Medicare program under title XVIII of the Social Security Act
be qualified retirees
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Adjustment for Age and Gender
provided to individual, BUT priced for age and gender characteristics of all employees of employer
Secretary, for same coverage if priced for age and characteristics of American workforce
Example: For employee with self-only coverage in 2019, if standard FEHBP coverage priced for age and gender characteristics of workforce of employee’s employer is $11,400 and Secretary estimates that premium cost for individual standard FEHBP coverage priced for age and gender characteristics of national workforce is $10,500, threshold for that employee would be increased by $900 ($11,400 less $10,500).
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Cost of coverage determined by adding up costs of each type of applicable employer-sponsored coverage
and charging for COBRA coverage
“similarly situated employees”
different employees
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Step 1- Mandatory Aggregation Based on Benefit Package
employer Step 2- Mandatory Disaggregation Based on Self-Only or Family Coverage
than-self-only coverage. Step 3- Permissive Aggregation Within Other-Than-Self-Only Coverage
coverage based on number of individuals covered in addition to employee. Step 4- Permissive Disaggregation Based on Other Distinctions
(compensation, job categories, union groups) or more specific standard (current vs. former, geographic distinctions, number of covered dependents)
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Self-insured plans’ methods for calculating COBRA premium
for similarly situated beneficiaries determined on actuarial basis
period occurring during preceding 12-month period
any period ending no more than 13 months before current period
IRS proposes requiring plans to choose method in advance and use for at least 5 years
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actuarial values, metal levels, other metrics Treasury soliciting comments on whether any alternative approaches to determining cost of applicable coverage would be consistent with statutory requirements
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Does the amount of a high-deductible in a high-deductible plan get deducted from the cost of the plan?
Please clarify the impact of HSA contributions on the calculation of the Cadillac Tax? Both employer-paid and employee-paid costs of coverage are generally taken into account in determining whether Tax applies. Employee after-tax contributions to HSAs are not taken into account, but employer contributions and pre-tax salary reduction contributions to HSAs are taken into account.
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Sponsoring employer determines total amount of any Cadillac Tax due with respect to a given employee
allocate amount among all entities liable for paying their share of Tax
forecasted into current premiums and/or recouped by future- year premiums
guidance published to date)
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employee attraction and retention strategy
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Review Checklist issues
Consider next steps/actions to avoid significant benefit reductions in 2018
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plans)
commitments for 2018 in very near future
to protect against potentially exorbitant tax
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2015 2015 2015 2016 2017 2018 2019
Implement low cost plans:
H.S.A. plans
Plans Implement contract negotiation strategies Migrate non union employees into new plans Implement Accountable Care Organization Narrow Network Plan Continue to Implement Contract Negotiations Strategies Migrate All Employees to New Plans Monitor Impact of Inflationary Adjustments Repeat Cycle of Cost Projection, Discussion, Negotiation, and Tax Avoidance Engage professionals Engage unions Engage public officials Project impact of tax without action Project impact of tax with plan redesign and cost shifting Monitor development
State laws
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Bold items indicate new plans or changes for that year; also over time deductibles and copays in the plans will increase to ensure a slow progression of cost shifting to avoid plan cost that would exceed the thresholds
2014 2015 2016 2017 2018
PPO 1 (100% Coinsurance) PPO 2 (100% Coinsurance) High Deductible Health Plan New – Increase Firm’s contribution to HSA PPO 1 (100% Coinsurance) PPO 2 (100% Coinsurance) High Deductible Health Plan No Increase to HDHP employee premium Increase employee premium differential between the PPO plan Increase wellness incentives from $25 to $50 per pay PPO 1 (90% coinsurance) PPO 2 (80% coinsurance) High Deductible Health Plan Introduce a plan with a “narrow”, high efficiency network Eliminate PPO 1 PPO 2 High Deductible Health Plan Introduce Health management requirements for spouses Introduce
incentives Evaluate alternatives to the PPOs Eliminate PPO 2 High Deducible Health Plan (s) Evaluate alternatives to the PPOs
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http://www.connerstrong.com/healthc are_reform
» News updates » Online library of client updates and alerts » Summary of major provisions of the new law » Detailed Year-by-Year timeline of changes » Outline of all aspects of the new law Check back for updates, news and analysis, and updated tools to help you navigate this complex process Call Conner Strong & Buckelew at 877-861-3220
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