cadillac tax (1)
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Privileged & Confidential
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The “Cadillac Tax”
Privileged & Confidential
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Privileged & Confidential Overview
The Cadillac tax is: Tax on health coverage provided through employers that is deemed “expensive”
– DOES NOT cover insurance purchased directly from insurers by patients– Refers to a Revenue generating provision within title 9 of the Affordable Care Act– Actual Title: Excise Tax on High Priced Employer Sponsored Health Coverage
PPACA Enacted Original Launch Date ofCadillac Tax
Current Scheduled Launch Of Cadillac Tax
2010 2013 2018
https://www.law.cornell.edu/uscode/text/26/4980I
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Privileged & Confidential Goals and Implications
http://kff.org/health-costs/issue-brief/how-many-employers-could-be-affected-by-the-cadillac-plan-tax/
Raise money to help pay for ACA and reduce national debt
Incentivize employers to assess cost effectiveness of insurance plans
2
Decrease utilization of healthcare services by patients
1
3
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Privileged & Confidential Model of Employer Health Coverage
HCPEmployer
Insurance
Patient
Savings Option
Premium
Prem
ium
Coverage
Out of Pocket
Healthcare
Wages
Contribution
contribution
Out of Pocke
t
• Patients and employers (if fully insured) pay regular premiums to insurance provider
• Insurance covers part of healthcare cost
• The rest is paid out of patients’ pockets
• Patient pocket is funded by employer wages and contributions to savings options
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Privileged & Confidential Goals and Implications
HCPEmployer
Insurance
Patient
Savings Option
Premium
Prem
ium
Coverage
Out of Pocket
Healthcare
Wages
Contribution
contribution
Out of Pocke
t
TAX
TAX
Some employers’ coverage will exceed the ACA limits
Employers’ and insurers’ taxes will fund the ACA
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Privileged & Confidential Goals and Implications
Employer
Insurance
Patient
Savings Option
Premium
Prem
ium
Wages
Contributioncontribution
To avoid tax on high cost plans, employers will:
1. Constrain Premiums2. Reduce contributions to
savings options3. May drop savings
option altogether4. Compensation may be
shifted to wagesIncreases in wages will increase income tax
TAX
http://kff.org/health-costs/issue-brief/how-many-employers-could-be-affected-by-the-cadillac-plan-tax/
Privileged & Confidential
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Privileged & Confidential Goals and Implications
Insurance
HCPPatient
Savings Option
Prem
ium
Coverage
Out of Pocket
Healthcarecontribution
Out of Pocket
In turn, this will cause:
1. Insurance coverage to decrease
2. Patients’ out of pocket expenditures to increase (deductible, copay, etc)
http://kff.org/health-costs/issue-brief/how-many-employers-could-be-affected-by-the-cadillac-plan-tax/
Privileged & Confidential
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Privileged & Confidential Goals and Implications
Employer Health PlansInsurance
HCPPatient
Savings Option
Prem
ium
Coverage
Out of Pocket
Healthcarecontribution
Out of Pocke
t
Ultimately, the result will be:
– Decreased utilization of and expenditure on healthcare services
http://kff.org/health-costs/issue-brief/how-many-employers-could-be-affected-by-the-cadillac-plan-tax/
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Privileged & Confidential Meet Bob
BOB
YOURLAN
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Privileged & Confidential Key Definitions: “ESHC”
Section 9001. Excise Tax on High Cost Employer Sponsored Health Coverage
What Is “Employer Sponsored Health Coverage” (ESHC)?
Health Plan Tax Preferred Savings Options
Qualifying Standalone Health
Benefits
https://www.law.cornell.edu/uscode/text/26/4980I
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Privileged & Confidential Key Definitions: “Qualifying Standalone”
What Additional/Separate Benefits Qualify as ESHC?
https://www.law.cornell.edu/uscode/text/26/4980I
QualifyingOffered through employer
Cost is excludable from income tax
Not specifically excluded in language of ACA
Specifically ExcludedLTC, nursing home, Home health, etc insurance
Limited scope dental and visionIndependent coverage for specific illness Hospital or fixed indemnity plan
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Privileged & Confidential Quiz: Is it ESHC?
Bob’s employer offers him coverage for health expenditures through contributions to a Flexible Spending Account (FSA)
BOB
YOURLAN
FSA
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Privileged & Confidential Quiz: Is it ESHC?
Bob’s employer offers him a Preferred Provider Organization (PPO) health plan through the insurer Blue Snake/Red Wing
BLUE SNAKE/RED WING
YOURLAN
BOB
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Privileged & Confidential Quiz: Is it ESHC?
Bob’s employer also offers him separate limited scope dental and vision coverage through another insurer, Red-Cross
RED CROSS
YOURLAN
BOB
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Privileged & Confidential Key Definitions: “Aggregate Cost”
https://www.law.cornell.edu/uscode/text/26/4980I
Employer Health Plan Insurer Standalone Health Benefit Insurer
Contributions to:
MSA, HSA, HRA, FSA*
Health Plan Premiums From:
Employer+
Employee
Total Cost of:
Qualifying health benefits offered separately from main
health plan
Aggregate Cost*employee contributionCounts as well for FSAs
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Privileged & Confidential Quiz: Is it included in “Aggregate Cost”
Yourlan contributes $1,000 to Bob’s HSA
HSAYOURLAN
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Privileged & Confidential Quiz: Is it included in “Aggregate Cost”
Bob contributes $1,200 to an HSA
HSA
BOB
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Privileged & Confidential Quiz: Is it included in “Aggregate Cost”
Bob elects to have $1,200 of his pretax salary re-routed into his FSA account
FSA
BOB
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Privileged & Confidential Quiz: Is it included in “Aggregate Cost”
Bob and his employer, Yourlan, pay premiums to Blue Snake/Red Wing for coverage of Bob’s health care
BOB
Yourlan
Blue Snake/Red Wing
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Privileged & Confidential Key Definitions: “Aggregate Cost”
https://www.law.cornell.edu/uscode/text/26/4980I
Employer Health Plan Insurer Standalone Health Benefit Insurer
Contributions to:
MSA, HSA, HRA, FSA*
Health Plan Premiums From:
Employer+
Employee
Total Cost of:
Qualifying health benefits offered separately from main
health plan
Aggregate Cost*employee contributionCounts as well for FSAs
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Any employee whose ESHC’s “Aggregate Cost” is:
> $10,200 if self-only> $27,500 if Family
What Is Taxed?– The amount by which an
individual’s coverage cost exceeds ACA limits will be taxed at 40%
0 1 2 30
5,000
10,000
15,000
20,000
25,000
30,000
35,000
Self Only Limit
Family Limit
Self Ex-ample
Family Example
Aggr
egat
e Co
st o
f Pla
n
40 %
40 %
http://housedocs.house.gov/energycommerce/ppacacon.pdf
How the Tax is Triggered
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Privileged & Confidential Bob’s Aggregate Cost
• The sum of combined contributions to Bob’s FSA and combined premiums for Bob’s health plan equal his “Aggregate Cost”
• Standalone Dental/Vision is not ESHC; It is not added to “Aggregate Cost”
+ + + =
$1,200 $1,000 $8,000$1,000FSA Contributions Health Plan Premiums
11,200Aggregate Cost
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Privileged & Confidential Bob’s Tax Fine
The aggregate cost of ESHC exceeds ACA limits by $ 1,000
=11,200Aggregate Cost
10,200ACA Self-Only Limit- $ 1,000
Taxable Dollars
40 % of the taxable dollars will represent the total Fee forBob’s health coverage
$ 1,000Taxable Dollars x 0.4
Tax Percent = $ 400Fee for Bob’s ESHC
…So who pays?
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Privileged & Confidential Contributing Entities
Each contributor pays “applicable share” of Fee
Share of Aggregate Cost
EmployerInsurance ProviderOther Benefit Provider
“Applicable Share” is equal to % share of Aggregate ESHC cost
https://www.law.cornell.edu/uscode/text/26/4980I
Employer Health Plan Insurer
Standalone Health Benefit Insurer
Contributions to:
MSA, HSA, HRA, FSA*
Health Plan Premiums From:
Employer+
Employee
Total Cost of:
Qualifying health benefits offered separately from
main health plan
Aggregate Cost
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Privileged & Confidential Applicable Share Calculation
$1,200 $1,000FSA Contributions
$8,000$1,000Health Plan Premiums
11,200Aggregate Cost
= 19.6% = 80.4%
$2,200 $9,000
2,200 / 11,200 11,2009,000 /
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Privileged & Confidential Applicable Share Calculation
19.6% of
$ 400Fee for Bob’s ESHC
$400
$78.40
80.4% of $400
$321.60Total Owed by Each Entity
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Privileged & Confidential Entity Responsibilities
Employer
• Calculate Total Excess cost
• Calculate applicable shares
• Report costs and applicable shares to Gov. and providers
• Pay applicable share
Insurance Provider
• Pay applicable share
Other Benefit Provider
• Pay applicable share
https://www.law.cornell.edu/uscode/text/26/4980I
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Privileged & Confidential Penalties
– Underpayment or no payment is penalized
– 30 day grace period
– Interest on unpaid portions between 30 days and date of payment is owed by applicable entity as penalty
– Penalties are assessed and owed separately for each contributing entity
https://www.law.cornell.edu/uscode/text/26/4980I
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Privileged & Confidential Cost Threshold Adjustments
Threshold Adjustments For Specific Employers – Adjusted for workforce gender and age characteristics as follows:
• Using Blue Cross/Blue Shield Federal Employee Plan as a standard:• Estimate premiums for every employee given an employer’s workforce demographics• Estimate premiums if work force had national average gender and age distribution• Increase the ACA limit for each employee by the difference in the two premium estimates
– If a majority of an employer’s workers perform “high risk” jobs, then• The limit shall be increased by $1,650 for self-only or by $3,450 for family
– If an employee is a qualified retiree, then• The limit shall be increased by $1,650 for self-only or by $3,450 for family
https://www.law.cornell.edu/uscode/text/26/4980I
Threshold Adjustments For Specific Employees
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Privileged & Confidential Cost Threshold Adjustments
Professions considered “high risk” includeLaw Enforcement Officers
Longshore workers Forestry Fishing
Telecommunication/electrical line installation/repair
Out-of-hospital emergency medical care providers (ie. first responders)
Agriculture Retiree of a high risk profession, if in that profession for 20 + years
Firemen Construction Mining
https://www.law.cornell.edu/uscode/text/26/4980I
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Privileged & Confidential Cost Threshold Adjustments
To illustrate these adjustment concepts:lets pretend Bob’s ESHC cost stays the same,
but instead of working at Yourlan at a desk,he is now bob the builder at a construction company
BOB
BROCK ‘N BACH’SCONSTRUCTION
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Privileged & Confidential Cost Threshold Adjustments
Bob’s Individual Limit is increased by 1,650 because of his high risk profession
=11,200Aggregate Cost
11,850ACA Self-Only Limit
(10,200 + 1,650)
- $ 0Taxable Dollars
$ 0Taxable Dollars x 0.4
Tax Percent = $ 0Fee for Bob’s ESHC
No longer a fee because aggregate cost is below limit
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Privileged & Confidential Cost Threshold Adjustments
Baseline/ National Threshold Inflation
– Thresholds will be adjusted for health cost inflation in 2018 (HCAP)– Baseline thresholds AND adjustment amounts for retirees and high risk professionals
will be indexed to the CPI in similar fashions
2018 20202019
Thresholds adjusted by % increase of premiums for the blue cross blue
shield standard federal employee plan less 55%
Thresholds and Employee levelAdjustments will be increased byInflation of Consumer Product
Index Plus 1 %
Thresholds and employee level adjustments will be increased by
Inflation of Consumer Product Index alone moving forward
http://housedocs.house.gov/energycomm erce/ppacacon.pdf
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Privileged & Confidential The Future
Trends in Premium Costs
2010 2015 2020 2025 2030 2035 2040 20450
10,000
20,000
30,000
40,000
50,000
60,000
Family premium trendsthresh FamilyCPI indexed thresh 4.5 % growth projection
BLUE GREEN = ACA cost limits
RED PURPLE = Avg premium price
Avg premium price inflates faster Than ACA cost limits
http://www.usinflationcalculator.com/inflation/historical-inflation-rates/
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Privileged & Confidential The Future
Trends in Premium Costs
More Employers will be affected over time
30 % by 2029
Perc
ent
*Model used data from Kaiser health survey
http://inq.sagepub.com/content/48/4/322.full.pdf
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Privileged & Confidential The Future
Trends in Premium Costs
http://kff.org/health-costs/issue-brief/how-many-employers-could-be-affected-by-the-cadillac-plan-tax/
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Privileged & Confidential Summary
• Employers will have to increasingly– Reduce covered health services– Increase deductibles and cost sharing– Decrease out-of-pocket support to employees through savings options
• Reluctance to spend on healthcare will increase
• HDHP Issues– Less deductibles will be met; less people will have prescription coverage kick in
• Prescription affordability issue may become systemic– Prescription coverage may decrease in more traditional plan types– Cost sharing may increase in all forms (deductibles, copays, coinsurance)
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Privileged & Confidential The “Cadillac Tax”
Other excluded standalone benefits- separate coverage for accident or disability income- general or auto liability insurance or supplemental liability- worker’s comp or anything of the like- automobile medical coverage- credit only insurance- coverage of on site medical clinics
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