cadillac tax (1)

Privileged & Confidential

For internal use only, do not copy, do not distribute

The “Cadillac Tax”


For internal use only, do not copy, do not distributeFor internal use only, do not copy, do not distribute

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



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

http://kff.org/health-costs/issue-brief




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




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




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







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)





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




Privileged & Confidential Meet Bob

BOB

YOURLAN



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




Privileged & Confidential Key Definitions: “Qualifying Standalone”

What Additional/Separate Benefits Qualify as ESHC?


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



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




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




Bob’s employer also offers him separate limited scope dental and vision coverage through another insurer, Red-Cross

RED CROSS

YOURLAN

BOB



Privileged & Confidential Key Definitions: “Aggregate Cost”


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



Privileged & Confidential Quiz: Is it included in “Aggregate Cost”

Yourlan contributes $1,000 to Bob’s HSA

HSAYOURLAN




Bob contributes $1,200 to an HSA

HSA

BOB




Bob elects to have $1,200 of his pretax salary re-routed into his FSA account

FSA

BOB




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



Privileged & Confidential Key Definitions: “Aggregate Cost”


Employer Health Plan Insurer Standalone Health Benefit Insurer

Contributions to:

MSA, HSA, HRA, FSA*


Employer+

Employee

Total Cost of:

Qualifying health benefits offered separately from main

health plan

Aggregate Cost*employee contributionCounts as well for FSAs




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



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



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?



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


Employer Health Plan Insurer

Standalone Health Benefit Insurer

Contributions to:

MSA, HSA, HRA, FSA*


Employer+

Employee

Total Cost of:

Qualifying health benefits offered separately from

main health plan

Aggregate Cost



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 /



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



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


Other Benefit Provider





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




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


Threshold Adjustments For Specific Employees




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





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




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




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

http://housedocs.house.gov/energycomm

http://housedocs.house.gov/energycomm



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/





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






http://kff.org/health-costs/issue-brief/how-many-employers

http://kff.org/health-costs/issue-brief/how-many-employers



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)



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

cadillac tax (1)

Documents