The Cadillac Tax: Newly Issued Guidance Defining High - Value Plans - - PowerPoint PPT Presentation
2 2:30 P.M. Thursday August 27, 2015 The Cadillac Tax: Newly Issued Guidance Defining High - Value Plans and Strategies Employers Must Understand Today Andrea Esselstein, JD Luke Clark Group Benefits Compliance Senior Consultant
Defining “High-Value” Plans and Strategies Employers Must Understand Today
Andrea Esselstein, JD
Group Benefits Compliance Team Leader
Luke Clark
Senior Consultant Group Benefits
August 27, 2015
Begin Strategic Planning & Preparations in Advance
IRS Comment Window Closes
4
“high-value” plans (both fully insured and self-funded plans)
($850 / month) for single coverage; $27,500 ($2,292 / month) for other than self-only coverage (family coverage)
care & excess spending by employers and employees
Non Self-Only Coverage $27,500 per year ($2,292/month) Self-Only Coverage $10,200 per year ($850/month)
5
total cost of health benefits for an employee in a year and the threshold amount for that year
Share of Employers with at Least One Plan Hitting Threshold
Year Self-Only Threshold Premium, HSA, HRA & FSA Small Firms (3-199 workers) Large Firms (200 or more workers) 2018 $10,200 25% 46% 2023 $11,800 29% 56% 2028 $13,500 41% 68% Source: Kaiser Family Foundation (KFF) analysis KFF assumed the FSA contributions by employees of larger employers would be higher than those by employees
KFF assumed annual increases in the threshold amount of 2.7% Share of Employers with at Least One Plan Hitting Threshold Different Premium Growth Assumptions Year Self-Only Threshold Premium, HSA, HRA & FSA Premium Growth 4% 5% 6% 2018 $10,200 24% 26% 27% 2023 $11,800 26% 30% 38% 2028 $13,500 29% 42% 54%
Threshold amounts will increase annually based on general inflation (i.e., CPI, not the rate of inflation for medical & Rx costs)
8
fully-insured plans
contributions 3. “…the person that administers the benefits” for all other amounts
9
i.e., what does employer’s calculations of the excess amount show as the source(s)?
Benefits
10
coverage provider, the insurance company will invoice their employer groups an amount to cover not just the 40% tax, but an amount which will cover their income taxes on the receipt of that 40% tax amount.
company, there is no “tax on the tax” problem since the employer group is able to get a deduction for the full amount paid to the insurance company. – Problems occur when the employer group is in a lower tax bracket than the insurance company.
11
Not-for-Profit Example: Assume 10 employees with individual coverage each have fully-insured plans with annual premiums @ $10,700. – Cadillac Tax due is $2,000
– Because the Insurance Co. is in the 35% Federal Corporate Tax bracket, they will charge their clients ~154% of any Cadillac Tax, to net 40% of the tax due. Example based
Therefore, the Not-for-Profit Company Pays a Cadillac Tax = 61.6%, $3,080 / $5,000
12
the carriers’ taxable income if those amounts are included in the premiums (i.e., not billed separately)
would be billed separately, the IRS is considering an ”Income Tax Reimbursement Formula”
13
Basic concept is to allow the exclusion from the cost of applicable coverage an amount that would represent the “grossed-up” in premium that a coverage provider would invoice a plan sponsor The proposed formula to compute the amount to exclude would use either: 1. coverage provider’s actual marginal Federal Income Tax rate or 2. prescribed rate defined by the IRS IRS solicited comments regarding all issues regarding the Income Tax Reimbursement Formula
14
AND allocating the amount among coverage providers owing the tax.
notify the IRS of taxes due from each coverage provider.
an employer calculation error, the tax remains due and the employer may owe an additional penalty equaling the amount of the error plus interest.
Excess amount will be determined for each employee … One employee’s plan selection and HSA / FSA contributions are different from
15
“Treasury and IRS anticipate that employers will be required to determine the cost of applicable coverage provided during a taxable year sufficiently soon after the end of that taxable year to enable coverage providers to pay any applicable tax in a reasonably timely manner.”
16
(i.e., no downward adjustment to the limits)
non-self-only limits
Survey” to determine the age & gender characteristics of the national workforce PROPOSAL: Require employers to use the 1st day of a plan year as the snapshot date to determine the composition of its employee population
Non Self-Only Coverage $30,950 per year ($2,579/month) Self-Only Coverage $11,850 per year ($988/month)
for 20 years
17
2018 THRESHOLDS
18
Comment Request for How to Identify: 1. Coverage made available to member employers 2. Age & gender adjustments and the adjustment for high-risk professions 3. Taxpayer responsible for calculating and reporting the excess benefit 4. Employer / Member liability for any penalty for failure to properly calculate the tax
20
purchased & number of purchases
& member utilization
Evaluate use of narrow networks Market Rx program Incentivize employees to obtain age-appropriate preventive exams Consider value-based plan designs
benefits can be eliminated to avoid the tax (e.g., not offering FSAs or eliminating employer HSA contributions)
1. Cost of the members’ medical and Rx claims 2. Cost of the members’ medical and Rx claims 3. Cost of the members’ medical and Rx claims
21
plans in determining the aggregate cost
age & gender adjustment
Andrea Esselstein, J.D. aesselstein@oswaldcompanies.com Luke Clark, Senior Consultant
lclark@oswaldcompanies.com