There is an estimated 30-33 million people who will be covered under the health care reform law (PPACA). How to pay for these people is a real concern. Additionally, depending on the immigration bill, an additional 8-10 million people may be eligible to receive partially or fully subsidized insurance. There are upwards of twenty obvious and not so obvious taxes in PPACA. Preliminary effects of the additional taxes and rating changes look to add 8-16 percent onto already high health insurance premiums.
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One tax in particular I want to outline is the “Cadillac” tax coming into effect in 2018. You are probably thinking, why talk about something seemingly so far in the future? Well the tax is an onerous one and proper planning is in order to address this before 2018.
The Cadillac Tax is a non deductible PPACA tax levied on businesses for employer and employee contributions towards health insurance plans they offer their staff and families starting in 2018.
In addition, the tax takes into account all employer and employee contributions towards flexible spending accounts, employer contributions for Health Savings Accounts (HSA) and finally, employer contributions for Health Reimbursement Accounts (HRA). Calculation excludes insured, stand-alone dental and vision coverage. The thresholds for the tax are $10,200 for individuals and $27,500 for families. Therefore, if your Health Insurance plan, FSA (if any), HRA (employer portion if applicable) and HSA (employer portion if applicable) is above the threshold, the employer will be subject to the 40% tax per dollar above the threshold for each employee. Yes, you read this right, the EMPLOYER will be subject to paying the tax.
Armed with this information I put together a quick analysis and used a basic HMO $25 co-pay plan and ran the numbers. I was surprised, or maybe not too surprised to find that many of our clients would hit the threshold at or around 2018.
There are a few reasons why health plans in the Northeast as more expensive than ones seen around the country. We have excellent care in the Northeast with highly regarded physicians and facilities with world-class reputations. As a result, we pay more for that care. Additionally, there are a slew of mandated benefits that impact all our rates in Massachusetts to the tune of 10% or more annually. In a nutshell, our health insurance plans are expensive.
To combat the tax in 2018, there are a few strategies that need to be investigated. From down grading to a consumer directed high deductible plan to reviewing a health savings account.
In addition, there has to be an investment on behalf of all employees/ subscribers and families to take a more active role in their health (through wellness plans), their health care and ultimately their health insurance since all contributions of health insurance plans and flexible spending plans are part of the mix as well as employer portions of HRA and HSA funding. Some thoughts involve moving employees below the 30 hour minimum weekly work hour threshold. This is a real issue if businesses shift full-time employees to part-time status. This will water down the employer funded insurance ranks and potentially force more people into the increasingly expensive individual market.
As things stand now, an estimated 60% of companies nationally may be subject to the tax in 2018. This concerns all involved. Therefore, there are efforts underway to lessen the effects of the Cadillac Tax or repeal the Cadillac Tax all together. Either way, it is essential that businesses continue to plan ahead for 2018 and become an engaged, enlightened health care and insurance consumer. The time is now!
Image Credit: 401(K) 2013
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