The Loop

Healthcare Reform Updates

Filed under: Benefits

If there's one provision of the 2010 Patient Protection and Affordable Care Act (ACA) that has been most contentious, it is the so-called "Cadillac Tax". Originally scheduled to begin January 1, 2018, the tax has been delayed to 2020 thanks to growing bipartisan opposition. In December of 2015, President Obama signed into law a delay that was tied to the 2016 budget bill. The Cadillac Tax, which would be paid by employers, health insurers and any other entities that administer plan benefits, is now scheduled to go into effect January 1, 2020.

The 40 percent tax is slated to be levied on all annual health plan costs that exceed $10,200 for individuals and $27,500 for families (referred to as the "excess benefit"). For example, if an employer sponsors a plan with annual family premiums of $30,000, the tax would apply to the $2,500 that is above the limit. While the value of stand-alone dental and vision benefits are not included for the purposes of the employer tax, those incorporated in the tally include plan benefits paid for by both employers and employees, such as:

• Medical premiums for active employees and former employees
• Health Flexible Savings Accounts (FSA)
• Health Savings Accounts (HSA)
• Archer Medical Savings Accounts (MSA)
• Multiemployer plans
• Governmental plans
• Specified disease or fixed indemnity insurance coverage that is excludible from income
• On-site clinics

Opposition Continues
Nothing about this tax is a done deal. Opponents plan to continue working to have the tax repealed altogether. In the meantime, the U.S. comptroller general and the National Association of Insurance Commissioners have been authorized to conduct a study to determine whether the tax should be adjusted to reflect age and gender factors when setting expense thresholds. Some experts claim that the tax unfairly punishes older workers and those who live in high healthcare-cost areas of the country.

The Cadillac Tax is an excise tax, which means that employers will be able to shift its cost to employees via higher premiums or reduced employer contributions to FSAs or HSAs. Some industry experts have projected that as many as one-third to one-half of all employers would be subject to the tax by 2018. Unions are particularly emphatic that the tax will increase the amount that union members pay each month as part of their collective-bargain health plans.

There are two additional issues relative to the Cadillac Tax that are worth noting. First, the $10,200/$27,500 health plan value limits will continue to be indexed each year, even though the tax is delayed until 2020.

Second, the provision for the delay also shifted the tariff to tax-deductible status, which will allow the Cadillac Tax to be deducted as a normal business expense. This should help minimize its impact for some employers.

For employers that continue to offer rich healthcare benefit packages to their workforce, it is a perplexing time. On one hand, given the successful delay tactic and the growing opposition to penalizing companies that offer excellent health insurance, there is a chance that the tax will be repealed in its entirety. Not one of the remaining 2016 presidential candidates – Republican or Democrat – supports the tax.

On the other hand, should the tax remain on the books, employers have four years to figure out how to reduce the value of their health benefits while still offering competitive plans to attract and retain talent. If they don't use this time prudently to find solutions, they could incur a huge tax bill come 2020.

Extension of Health Plan Information Due Dates
As an example of how long it can take to implement changes to current health plans, this year the Internal Revenue Service had to extend the deadlines for the 2015 ACA information reporting requirements both to individuals and the IRS.

  • Section 6055 requires health insurance issuers, self-insured employers, government agencies and other providers of minimum essential coverage to file and furnish annual information returns regarding coverage provided.
  • Section 6056 requires applicable large employers (generally those with 50 or more full-time employees, including full-time equivalents) to file and furnish annual information returns regarding the coverage the employer offers or does not offer to its full-time employees.

The following due dates were extended:

  • To distribute Forms 1095-B and 1095-C to individuals: Due date extended from February 1, 2016 until March 31, 2016
  • To file Forms 1094-B, 1095-B, 1094-C, and 1095-C with the IRS:

– If not filing electronically, due date extended from February 29, 2016 until May 31, 2016
– If filing electronically, due date extended from March 31, 2016 until June 30, 2016
– Employers filing more than 250 forms must transmit the forms to the IRS electronically via the ACA Information Returns (AIR) system, which uses a complex schema that is still under development and testing.

It is worth noting that Form 1095-C filed with the IRS requires much more information than your basic Form W-2. Information required for each full-time employee on a monthly basis includes the following:

  •  Worker identification number
  •  Taxpayer identification number
  •  Address
  •  Full-time status
  •  Length of full-time status
  •  Proof of minimal essential coverage offered
  •  Worker's share of coverage premium costs
  •  Whether an offer of coverage was made to the employee
  •  Coverage dates
  •  The lowest-cost monthly premium for self-only coverage available to the employee
  •  Waiting periods, safe harbors and enrollment data

This information must be submitted using (18) IRS-prescribed indicator codes, which necessitates a payroll system that can translates employee payroll and benefits data into the applicable indicator codes. Without a comprehensive system, collecting the required information creates an administrative burden for employers, many of whom must consult with multiple sources such as their benefits carrier or broker, HR information system, payroll company, time-off tracking software and others.

Employers that offer self-insured plans must report month-by-month enrollment information for each covered individual, including dependents, nonemployee enrollees such as COBRA recipients and pre-65 retirees.

Employers that do not provide the completed forms by the extended due dates will be subject to a penalty (recently increased to up to $250 per form) for failure to timely furnish and file. However, if the forms are received beyond the deadlines but in a timely manner, the IRS has indicated that it will take this into consideration when determining whether to abate penalties for reasonable cause.

Cost-Sharing Limit Change
Starting January 1, 2016, the out-of-pocket maximum for a health plan's essential health benefits (EHB) may not exceed $6,850 for self-only coverage (up from $6,600 in 2015) and $13,700 (up from $13,200) for family coverage. Furthermore, the Department of Health and Human Services (HHS) recently clarified that the self-only annual limit on cost-sharing applies to each individual, regardless of whether the individual is enrolled in self-only coverage or family coverage.

For example, a plan with a $10,000 family deductible must apply the annual limit of $6,850 to each individual in the plan, even if this amount is below the $10,000 family deductible limit. Once an individual reaches $6,850 in cost-sharing expenses, the plan's coverage kicks in for that individual as if the full deductible was met.

Expect More Changes
We are currently embroiled in one of the most of the most antagonistic early-season presidential campaigns in recent history. Particularly on the Republican side, candidates have been so combative that it has been difficult to garner or differentiate their views on the issues. However, given its distinct lack of popularity, the signature "Obamacare" Act is likely to be the topic for considerable debate as we grow closer to November. Even the Democratic candidates have proposed significant changes to the health reform law.

Going forward, it is difficult to speculate what changes may be forthwith by this time next year, but it is almost certain that periodic updates will continue.

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