Preparing for the Cadillac Tax Wednesday May 13, 2015 2:00pm – 3:00pm EST
Today’s Speakers Joe DiBella Executive Vice President of the Health & Welfare Practice Conner Strong & Buckelew Phyllis Saraceni Senior Vice President, Compliance & Audit Practice Leader Conner Strong & Buckelew 2
Welcome and Agenda Conner Strong & Buckelew’s next installment in ongoing series of webinars on key national healthcare reform issues Healthcare reform “Cadillac Tax” Amount and how it is calculated Adjustments Impact on employer-sponsored health plans Recently issued guidance Approaches to implementation Plan design and cost containment solutions 3
The Affordable Care Act “Excess Benefit” Cadillac Tax
Political and Social Landscape Patient Protection and Affordable Care Act (PPACA, or ACA, or HCR) 2014/2015 = one of most active/eventful periods for HCR implementation since enactment of PPACA in 2010 House has voted more than 50 times to delay or repeal HCR Democrats controlled Senate until January and still have power as minority party – so can still block most legislation Repeal remains unlikely President standing firm on continued roll-out Cadillac Tax Number one concern of employers since PPACA passed Very complicated and hard-to-administer excise tax Expected to be significant burden on most employers 5
When/What/Duration When? Begins with 2018 taxable year What? 40% tax on employer sponsored health coverage (with limited exceptions) that exceeds specified limits Applies to combined cost of all medical coverage on calendar year basis Annual nondeductible “excise” tax “sin” tax like those on alcohol and tobacco Tax is technically paid by insurers and TPAs who will simply pass cost right back to employers, and ultimately employees Duration? Permanent 6
Participant Question 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: - $10,200 for single plans - $27,500 for family plans, including couple and parent child(ren) plans With time, more and more plans will trigger Tax since law indexes thresholds to general, rather than medical, inflation . 7
Purpose/Congressional Intent Raise revenue to pay for other aspects of healthcare reform Generate $80 billion over next 10 years to help finance expansion of health coverage Subsidize coverage for currently uninsured Reduce aggregate demand for medical services Restrain healthcare spending Address perceived tax “inequities” and economic inefficiencies (over 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 8
Practical Effect Tax acting as catalyst for change Will drive employers to reassess benefit plan offerings and reconsider approach in future Will be difficult for many employers to avoid Tax Burden of Tax will fall on significant number of American employees and their families In 2018, Tax is expected to hit 17% of all American businesses and 38% of large employers Within 20 years, impact of Tax will not be limited to just high value plans By 2031, cost of average family healthcare plan is expected to hit Tax threshold 9
Participant Question 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. Notice 2015-16: first piece of guidance; just released in February Describes approaches being considered for number of issues Another Notice describing additional potential approaches is expected at some point in future (late spring/early summer?) Then proposed regulations to be issued (maybe next year?) Don’t expect Final Rules anytime soon – but before 2018 10
Legislative Fix Possibilities? Members of Congress facing pressure to support repealing, delaying, or modifying Cadillac Tax Tax not liked by either side of aisle (may not survive?) Recent bill introduced in House of Representatives that would repeal Tax Dozens of Democrats joined by a few Republicans introduced second House bill to eliminate Tax if eliminated, government must find alternative revenue streams to make up for lost revenues counted on to help pay for ACA National Coalition on Benefits, National Business Group on Health, 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 11
Supreme Court Review Ahead March 4 th SCOTUS hearing on new and high profile challenge to PPACA - Issue: legality of federal exchange subsidies (premium tax credits) offered in 36 states - Subsidies assist large number of middle and low-income individuals with purchase of individual health insurance Decision expected in June Ruling could unravel intent of massive HCR law If subsidies found illegal in federal exchange - number of U.S. residents with individual coverage would decline - significant premium increases - unsubsidized premiums in exchanges would increase 12
Participant Question 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 No. Individuals (including employees) who are eligible for Medicare or Medicaid are generally not eligible for a premium tax credit (PTC). Under pay or play provisions, if an applicable large employer (ALE) does 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. If no FTE receives a PTC (for example, because all FTEs are eligible for Medicare or Medicaid), employer will not be subject to penalty payment. 13
Calculating and Assessing Tax • IRS to develop procedures for calculating and assessing Tax Rules still very much in works with further opportunity for comment • Cost of applicable coverage for purposes of Tax is determined under rules similar to COBRA rules IRS considering several detailed proposals for calculating cost of coverage for Cadillac Tax purposes as well as COBRA purposes Rulemaking is prompting renewed focus on how to calculate COBRA “applicable premium” and charging for COBRA coverage Significant lack of COBRA premium guidance 14
Participant Question Does the COBRA premium equivalent calculation include the Excise Tax as a cost of coverage that is passed on to COBRA participants? No. The amount of the Tax is not included in the COBRA equivalent premium. any amount attributable to Tax itself is not taken into account (not included in cost): “[E]xcept that in determining such cost, any portion of the cost of such coverage which is attributable to the tax imposed under this section shall not be taken into account” 15
Participant Question 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. No. NJ Chapter 78 does not require that the amount of the Tax be included in premium equivalent used to calculate employee contributions. 16
Examples: How to Determine Tax 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. 17
Participant Question 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. 18
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