Cadillac Tax Delayed, Health Insurer Fee Suspended
In January, Congress passed and the President signed continuing appropriations legislation that includes two important provisions relating to the Affordable Care Act:
The Cadillac tax
The health insurer fee
The effective date of the excise tax on high-cost employer-sponsored health coverage, commonly known as the Cadillac tax, has been delayed until 2022 (in other words, tax years beginning after December 31, 2021). Originally set to take effect in 2018, the Cadillac tax had previously been delayed until 2020.
By definition, the Cadillac tax is a 40% excise tax on high-cost employer-sponsored health benefits above a predetermined threshold. The current thresholds are $10,200 per year for individuals and $27,500 for families. For pre-65 retirees and individuals in high-risk professions, the threshold amounts are currently $11,850 for individuals and $30,959 for families. The amounts will be adjusted, in part due to inflation, as the tax goes into effect in 2022.
The following information is provided as a guide or reminder, but it will potentially change before the implementation date.
*Further regulatory clarification is required. **Information provided, in part, by Cigna (2018)
According to the 2017 National Business Group on Health (NBGH) survey, uncertainty surrounding the Cadillac tax surcharge is influencing efforts to control healthcare costs for about 8% of large employers surveyed. Additionally, 53% of large employers expected at least one of their health plans will exceed the tax threshold in 2020, while 56% estimated that their most popular health plan will hit the threshold by 2022. They further identified that by 2030, 95% of employers estimated that their highest enrollment health plan will be subject to the tax.
Some suggested efforts to help reduce the coverage cost that will positively impact the tax. The suggestions include moving to high-deductible plans and other shifting of health care costs to employees by adjusting deductibles, co-payments and co-insurance rates. More employers are also considering certain tradeoffs across their benefits package, including cuts in retirement contributions, that that could also trigger the tax.
The NBGH survey found that the vast majority (90%) of large employers are likely to offer consumer-driven healthcare plans by 2018, with 39% of employers offering only higher deductible plans by that time. Consumer-driven healthcare plans are most commonly designed as high-deductible plans paired with a tax-exempt health savings account, and the plans have been shown to help reduce healthcare costs.
According to Employee Benefit News, “employers also are exploring improvements to their health care offerings in an effort to reduce coverage costs. Some are looking to provide tele-health options and worksite or nearby clinics to manage primary and preventative care. Other employers are partnering with accountable care organizations, (by definition narrow) networks of doctors and hospitals that provide coordinated care to patients."
Health insurer fee
This annual fee is payable by insurers based on their proportionate share of the aggregate fee for the year as set by statute. (The share is based on the insurer’s net premiums written for U.S. health risks for the previous calendar year.) The fee took effect in 2014 but won’t apply in calendar year 2019. It had similarly been suspended for calendar year 2017 but applies for calendar year 2018. After the 2019 suspension, barring further legislative action, the fee will apply again for the 2020 calendar year.
The legislation’s focus was on temporarily continuing to fund government operations, but it also reauthorized the Children’s Health Insurance Program (CHIP) for six years. The additional delay in the implementation of the Cadillac tax will be welcome news for employers struggling to determine the potential impact of the tax on their plans. The IRS will also have more time to resolve administrative issues surrounding the tax.
Employers will also favorably view the one-year suspension of the health insurer fee (which is treated as an excise tax). Although the fee isn’t directly assessed against employer plan sponsors, it will likely affect premiums paid by employers that sponsor insured plans. Efforts to change or perhaps repeal both taxes are likely to continue.