Fluid. “Stay fluid,” my co-worker said. But you could tell that his comment wasn’t really directed to me. It seemed more of a reminder to himself on how to navigate our current project, which had various unpredictable twists and turns.
So as a broker, how do you handle the ever-changing shifts and changes that occur with the Affordable Care Act’s Cadillac Tax? Do you get frustrated or stressed? Take my friend’s advice and be fluid. But don’t stop there…stay on top of the changes and continue to earn the trust and confidence of your employer groups by keeping them informed.
The “Cadillac Tax” is an excise tax of 40 percent on high-cost employer-sponsored health plans. If triggered, the tax would impact employers who provide these generous plans, as well as their employees. High cost health plans are currently defined as health insurance policies over $10,200 for individuals and over $27,500 for a family. The purpose of the surcharge is to help keep down the cost of healthcare spending, as well as raise funds to help with expanding health care reform.
On December 18, 2015, Congress, as well as the President, agreed to postpone the start date for the tax. Additionally, the President proposed a few modifications in an effort to address concerns about certain requirements. Here are three changes and proposed modification you should keep in mind and share with your employer groups.
I. New Start Date
The new start date for the tax will be in 2020. This allows more time for your employer groups to prepare for this excise tax by examining their insurance policies and taking steps to ensure that they are not at risk of triggering the tax. This is especially important because one in four employers, per recent Kaiser Family Foundation projections, are likely to be subjected to this excise tax by the time it is enacted. Kaiser’s analysis further shows that if employers don’t change their plans, 30 percent of them will trigger the tax in 2023 and 42 percent in the next five years following that.
II. Tax Deductible Status
Previously, this excise tax was going to be non-tax deductible and therefore, could not be credited as a basic cost of doing business. With the new proposal, it would be tax deductible for employers who pay it, reducing their overall tax liability.
III. Tax Thresholds
A. Potential Individual and Family Threshold Increases
Currently, for planning purposes, the thresholds for an individual health insurance policy is $10, 200, and $27,500 for a family. Be on the lookout though as these amounts are subject to change once the tax goes into effect in 2020.
B. Threshold in line with State Gold Plan
Previously, the individual and family thresholds would grow annually with the Consumer Price Index, which rises at a slower pace than the actual cost of healthcare. The proposed modification ensures that the thresholds stay in line with each state’s gold plan and therefore, not fall below the average gold premium in each state.
C. Threshold Adjustments based on Geographic Areas
High premiums are not only a result of generous health insurance policies; premiums are also impacted by geographical areas. For example, New York, South Carolina and Alabama, are three of the states with the highest health insurance cost. Current modifications to the Cadillac Tax would make adjustments to the thresholds according to the differences in healthcare cost in a given geographic area.
In conclusion, it’s important to quickly figure out, like Reinhold Niebuhr, the things in life we can change, those over which we have no control and the wisdom to know the difference. The new effective date, tax deductible status and modified thresholds proposed for the Cadillac Tax probably qualify as things you have limited or no control over. So what are your options? Well, you have control over yourself and what you do, as well as the power to counsel your groups. So, be like the palm trees on the beaches in Florida during hurricane season and bend with the wind without breaking. And take the advice of my friend and stay fluid…but remain in the know about changes, advise your groups and together, keep moving forward.
The information in this blog is based on Solstice's review of the publicly available materials and is not intended to provide legal advice. While we make every effort to present and update accurate information, interpretations can vary. The overviews provided here are intended as an educational tool only and should not be relied upon as legal or compliance advice. For legal advice, please contact your attorney.
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