House Votes to Repeal the Cadillac Tax

On July 17, 2019, the U.S. House of Representatives voted across bipartisan lines to repeal the ACA’s Cadillac Tax. The final vote in the House was 419-6 in favor of repeal. The tax was designed as a penalty tax on high-value health coverage, to convince health plan sponsors to reduce benefits and keep costs down by discouraging overly generous plans. However, both employers and union groups opposed the tax.
 
This repeal is good news for plan sponsors but the measure still has to pass the Senate. One of the challenges to Senate passage is that the tax was originally included to help finance the ACA. Repealing the tax without replacing it with some other revenue source arguably leaves a sizable hole in the federal budget. It is estimated by the Congressional Budget Office that repealing the tax will cost the government approximately $196.9 billion over 10 years. 
 
The Cadillac Tax, originally slated to go into effect in 2018, has been delayed by Congress repeatedly. After several delays, the 40% excise tax on the cost of health coverage that exceeds predetermined threshold amounts goes into effect in 2022. Currently, those thresholds, which will be updated prior to 2022, are $10,200 for individual coverage and $27,500 for family coverage.
 
Diversified Group will keep you up to date on any additional action on this topic.
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Proposals on Many Wish Lists

self-fundingNow that the makeup of the new Congress has been decided, many employers are hoping Washington can work together to address a few of their important concerns. High on many lists, especially those belonging to large employers, would be doing away with the Cadillac Tax on high-cost health plans once and for all. While implementation has been delayed until the 2022 tax year, the law will require insurers and large employers to pay a 40% excise tax on the costs that exceed $11,100 for employee-only coverage and $29,750 for family coverage.

Other items that employers have been talking about for a long time include making HSAs considerably more user friendly and easing ACA reporting requirements to allow employee statements to be provided electronically rather than by mail.

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Doing What We Can

dgb-doing-what-we-can-blogWe often hear of professional athletes succeeding under pressure by staying “in the moment” and remaining focused on the things that are within their control. This challenge can be applied to the uncomfortable position all of us find ourselves in today – somewhere between complying with existing laws and anticipating the unknowns coming from Washington.

While the IRS has relaxed enforcement of the individual mandate and acknowledged problems in the ACA reporting system, it has confirmed that an applicable large employer is still subject to an employer shared responsibility payment if it fails to offer coverage to 95% of its full-time employees. We continue to help large employers offer minimum essential coverage to avoid penalties, when appropriate, and track offers of coverage to comply with reporting requirements on IRS forms 1094 and 1095.

Other matters remain up in the air as well, including the so-called Cadillac tax on high-cost health plans and any changes in maximum contributions that may be made to HSAs, which would require legislative action. While any significant ACA repeal, replace or repair efforts appear to be overshadowed by the Administration’s interest in tax reform, we continue to monitor developments in healthcare reform and keep our clients and partners informed. It’s our way of doing what we can and remaining “in the moment.”

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How employers are preparing for the Cadillac tax

The article below was published on September 20, 2017 by Employee Benefit News, written by Victoria Finkle.

Although the Cadillac tax isn’t set to go into effect until 2020, employers are already adjusting their health plans in an effort to avoid the added expense.

The 40% excise tax on high-cost healthcare, which was created to help fund parts of the Affordable Care Act, has long been one of the most controversial aspects of the law for employers, because it could ultimately impose significant costs.

Lawmakers discussed delaying the tax to 2025 or 2026 as part of the healthcare debate in Congress over the summer, but for now, the tax remains slated to go into effect just over two years from now.

“The time frame for plan changes at big companies is easily 18 months — and we’re not that far away,” says Jim Klein, president of the American Benefits Council.

aca-signs

A survey published last month by the National Business Group on Health found that uncertainty surrounding the surcharge is influencing efforts to control healthcare costs for about 8% of large employers surveyed, looking out over the coming year.

Still, while the majority of employers said they are maintaining their strategies to rein in costs regardless of the tax, Steve Wojcik, vice president of public policy for NBGH, says that the issue remains a “top priority” for many employers.

“Although our data show that the uncertainty about it isn’t having a huge influence on healthcare strategy, it’s definitely top of mind,” he says.

Kim Flett, compensation and benefits services managing director at accounting firm BDO, says that she advises clients to form internal committees of benefits experts to discuss employer options for tweaking healthcare offerings, in light of the upcoming tax, in addition to consulting with health insurance providers and accountants.

As part of that process, employers are considering certain tradeoffs across their benefits package — for example, whether cuts in retirement contributions might be required to maintain high-priced plans that could trigger the tax.

“Now that it’s looming, we’re seeing a lot more concern from employers,” she says.

Observers say there are a number of changes employers can make to their health plans to help reduce the cost of coverage and avert the tax, at least temporarily. Those include efforts to shift healthcare costs onto employees, through raising deductibles and increasing co-payments or co-insurance rates. Such changes face some statutory limits, however, as the ACA requires all out-of-pocket expenses to be capped at $7,150 for individuals and $14,300 for families in 2017.

More employers also are considering the move to high-deductible plans. The NBGH survey found that the vast majority (90%) of large employers are likely to offer consumer-driven healthcare plans by 2018, with 39% of employers offering only higher deductible plans by that time. Consumer-driven healthcare plans are most commonly designed as high-deductible plans paired with a tax exempt health savings account, and the plans have been shown to help reduce healthcare costs.

While many employers were already moving toward offering high-deductible plans, the threat of the tax has “really turbo-charged the growth” of the plans, says Christopher Beinecke, a Dallas-based lawyer at law firm Haynes and Boone, who specializes in employee benefits issues.

NBGH’s Wojcik says that employers also are exploring improvements to their healthcare offerings in an effort to reduce coverage costs. Some are looking to provide tele-health options and worksite or nearby clinics to manage primary and preventative care. Other employers are partnering with accountable care organizations, which are networks of doctors and hospitals that provide coordinated care to patients.

“You’re paying for better delivered care that costs less,” Wojcik says of the efforts.

Experts said that the pacing of any changes to reduce healthcare costs is likely to be spread out based on an employer’s specific needs. Some companies already began making plan adjustments in the years following passage of the ACA in 2010, because the tax was initially designed to go into effect in 2018. (It was delayed for two years in December 2015.)

Other employers are likely to make changes based on when their plans are expected to become subject to the tax. The tax is projected to go into effect for plans in excess of $10,800 for individual coverage and $29,050 for family coverage in 2020. Those figures will adjust each year with inflation.

“Employers by and large, if they haven’t already, will probably begin to make their gradual changes two or three years out from hitting the excise tax,” Beinecke says.

NBGH found last year that 53% of large employers expected at least one of their health plans will exceed the tax threshold in 2020, while 56% estimated that their most popular health plan will hit the threshold by 2022. By 2030, 95% of employers estimated that their highest enrollment health plan will be subject to the tax.

That’s why many employers are starting to make changes gradually over time in advance of those dates.

“The fact of the matter is you cannot make drastic changes to benefits overnight without causing a fiasco,” says James Gelfand, senior vice president of health policy at the ERISA Industry Committee.

tpas-vs-asos-the-differences-matter-cta

How employers are preparing for the Cadillac tax

The article below was published on September 20, 2017 by Employee Benefit News, written by Victoria Finkle.

Although the Cadillac tax isn’t set to go into effect until 2020, employers are already adjusting their health plans in an effort to avoid the added expense.

The 40% excise tax on high-cost healthcare, which was created to help fund parts of the Affordable Care Act, has long been one of the most controversial aspects of the law for employers, because it could ultimately impose significant costs.

Lawmakers discussed delaying the tax to 2025 or 2026 as part of the healthcare debate in Congress over the summer, but for now, the tax remains slated to go into effect just over two years from now.

“The time frame for plan changes at big companies is easily 18 months — and we’re not that far away,” says Jim Klein, president of the American Benefits Council.

aca-signs

A survey published last month by the National Business Group on Health found that uncertainty surrounding the surcharge is influencing efforts to control healthcare costs for about 8% of large employers surveyed, looking out over the coming year.

Still, while the majority of employers said they are maintaining their strategies to rein in costs regardless of the tax, Steve Wojcik, vice president of public policy for NBGH, says that the issue remains a “top priority” for many employers.

“Although our data show that the uncertainty about it isn’t having a huge influence on healthcare strategy, it’s definitely top of mind,” he says.

Kim Flett, compensation and benefits services managing director at accounting firm BDO, says that she advises clients to form internal committees of benefits experts to discuss employer options for tweaking healthcare offerings, in light of the upcoming tax, in addition to consulting with health insurance providers and accountants.

As part of that process, employers are considering certain tradeoffs across their benefits package — for example, whether cuts in retirement contributions might be required to maintain high-priced plans that could trigger the tax.

“Now that it’s looming, we’re seeing a lot more concern from employers,” she says.

Observers say there are a number of changes employers can make to their health plans to help reduce the cost of coverage and avert the tax, at least temporarily. Those include efforts to shift healthcare costs onto employees, through raising deductibles and increasing co-payments or co-insurance rates. Such changes face some statutory limits, however, as the ACA requires all out-of-pocket expenses to be capped at $7,150 for individuals and $14,300 for families in 2017.

More employers also are considering the move to high-deductible plans. The NBGH survey found that the vast majority (90%) of large employers are likely to offer consumer-driven healthcare plans by 2018, with 39% of employers offering only higher deductible plans by that time. Consumer-driven healthcare plans are most commonly designed as high-deductible plans paired with a tax exempt health savings account, and the plans have been shown to help reduce healthcare costs.

While many employers were already moving toward offering high-deductible plans, the threat of the tax has “really turbo-charged the growth” of the plans, says Christopher Beinecke, a Dallas-based lawyer at law firm Haynes and Boone, who specializes in employee benefits issues.

NBGH’s Wojcik says that employers also are exploring improvements to their healthcare offerings in an effort to reduce coverage costs. Some are looking to provide tele-health options and worksite or nearby clinics to manage primary and preventative care. Other employers are partnering with accountable care organizations, which are networks of doctors and hospitals that provide coordinated care to patients.

“You’re paying for better delivered care that costs less,” Wojcik says of the efforts.

Experts said that the pacing of any changes to reduce healthcare costs is likely to be spread out based on an employer’s specific needs. Some companies already began making plan adjustments in the years following passage of the ACA in 2010, because the tax was initially designed to go into effect in 2018. (It was delayed for two years in December 2015.)

Other employers are likely to make changes based on when their plans are expected to become subject to the tax. The tax is projected to go into effect for plans in excess of $10,800 for individual coverage and $29,050 for family coverage in 2020. Those figures will adjust each year with inflation.

“Employers by and large, if they haven’t already, will probably begin to make their gradual changes two or three years out from hitting the excise tax,” Beinecke says.

NBGH found last year that 53% of large employers expected at least one of their health plans will exceed the tax threshold in 2020, while 56% estimated that their most popular health plan will hit the threshold by 2022. By 2030, 95% of employers estimated that their highest enrollment health plan will be subject to the tax.

That’s why many employers are starting to make changes gradually over time in advance of those dates.

“The fact of the matter is you cannot make drastic changes to benefits overnight without causing a fiasco,” says James Gelfand, senior vice president of health policy at the ERISA Industry Committee.

tpas-vs-asos-the-differences-matter-cta

Views Limiting the employer tax exclusion for healthcare is the wrong idea

The article below was published on June 7, 2017 by Employee Benefit News, written by Craig Hasday.

The Republicans are looking everywhere for funds to fix healthcare, as well they should. This problem is not an easy one to solve, however. Under the Affordable Care Act, employers were faced with the Cadillac tax. As a result, they wasted no time planning to mitigate the effect. While the Democrats seemed to believe that this was a pot of gold available to solve some of the cost issues, the reality turned out much differently.

Consultants, like me, have spent the last few years planning for our clients to avoid ever paying the Cadillac tax. Employers fled to health savings accounts, self-insured plans and any strategy that would reduce costs below the taxable threshold. Instead of a pot of gold, there was a leprechaun at the end of the rainbow waiting to laugh at the CBO scoring, which had predicted billions in revenue.

Now, some prominent Republicans are looking to limit the employee health insurance tax exclusion or its counterpart, the employer deduction, to fund healthcare for the uninsured. I am hopeful that they take the time to look closely at the potential impact of this decision.

Peeling back the onion, altering the tax-favored status of employer-provided benefits will have the same effect as the Cadillac tax — employers are going to plan around it. More than 175 million Americans get healthcare through their employer, and this is not a progressive benefit. If the employer exclusion is eliminated there would be little incentive for employers to continue to provide benefits — and if they do, the pressure to reduce costs, and thus benefits, will be intense. The impact on lower-paid workers would be far greater than the more highly-compensated group.

Finding the pot of gold

Politicians may not be listening, but the effect of this change in tax treatment would be the opposite of what is desired. We need to go after the cost of healthcare. That’s the pot of gold.

Here are some suggestions to go after cost:

  • Further encourage the shift from pay-for-volume or pay-for-services-rendered to reimbursement of providers based upon value and the outcome of treatment.
  • Make drug pricing fairer; eliminate rebates which obscure real prices and regulate obscene pharmaceutical profits for patent-protected drugs.
  • Introduce meaningful tort reform.
  • Expand Medicaid in every state. This is the platform that should be used for subsidized care.

Each one of these changes is going to require a great deal of effort, but they are better than an ill-fitting Band-Aid which is just going to make healthcare even more expensive for the individual.

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Tell your Senators to Preserve the Employer-Based System and Permanently Repeal the Cadillac/excise Tax!

The National Association of Health Underwriters (NAHU)

Operation Shout!

DGBTakeActionOn May 4, the House of Representatives passed H.R. 1628, the American Health Care Act (AHCA), a reconciliation bill to repeal and replace portions of the ACA. It will now be considered by the Senate, where it is expected to be significantly altered, including possibly addressing two critical NAHU policy priorities: the employer exclusion of health insurance and the Cadillac/excise Tax. NAHU strongly opposes any efforts that would undermine the employer-sponsored health insurance system by eliminating or placing a cap on the employer-tax exclusion of health insurance and is strongly advocating a full repeal of the Cadillac/excise Tax, which under the AHCA would only be temporarily delayed.

More than 175 million Americans currently receive their coverage through the employer-based system, largely due to the tax exclusion where employers provide contributions for an employee’s health insurance that are excluded from that employee’s compensation for income and payroll tax purposes. Proposals that would cap the exclusion would devalue the benefit and serve as one of the largest tax increases in history for middle-class Americans, forcing many to drop employer-sponsored insurance, including dependent coverage, and be forced to seek coverage in the volatile individual market, where premiums are ever-increasing. Employers would be incentivized to only offer coverage to their employees that would fall below the value of the cap in order to avoid paying any increased taxes, potentially resulting in a race to the bottom for employers to sponsor insurance that wouldn’t meet the cap’s thresholds and further shifting costs onto employees.

In addition to opposing proposals to cap the exclusion, we are strongly advocating a complete repeal of the Cadillac/excise Tax. Currently set to take effect in 2020 under a two-year delay, this tax calls for a 40% excise tax on the amount of the aggregate monthly premium of each primary insured individual that exceeds the year’s applicable dollar limit, which will be adjusted annually to the Consumer Price Index plus one percent. Given that the pace of medical inflation is well beyond that of general inflation, the tax is destined to outgrow itself in short order and many employers will be impacted by the cost of the tax and the enormous compliance burden that the tax creates. The AHCA, as passed by the House, would only delay the tax until fiscal year 2026.

Over the coming weeks, as the Senate debates the AHCA and the other healthcare-reform proposals, we urge all agents, brokers and your clients to tell your senators not to do anything that would undermine the employer-sponsored health insurance system and to fully repeal the Cadillac/excise tax. You can help us spread the message by taking action below:

  1. Contact your senators. Send an Operation Shout today asking your senators to oppose any changes the employer tax exclusion and to support a full repeal of the Cadillac/excise Tax. You can also call your senators at the numbers below.
  2. Tell your employer clients to take action. Your employer clients would be most directly impacted by the elimination or cap of the employer tax exclusion and are seeking a full repeal of the Cadillac/excise Tax. Tell them to take action here.
  3. Share your story. As a licensed insurance specialist who works closely with employers to help them offer and utilize employer-sponsored health insurance, stories about how the employer tax exclusion directly impacts your clients will demonstrate the value of the exclusion and the need to preserve it, as well as the need to fully repeal the Cadillac/excise Tax. We will share your stories with appropriate legislators and staff. You can share your story here.

Take Action today and tell your senators to preserve the employer-based system and permanently repeal the Cadillac/excise Tax!
DGBTakeAction

Don’t want to send an email? No problem, you can also reach your senators by phone:
Sen. Richard Blumenthal (D) can be reached at (202) 224-2823.
Sen. Christopher Murphy (D) can be reached at (202) 224-4041.

This call to action is designed as an email message to your legislators. You are welcome to use the prepared text as talking points to call your legislators, or to expand on the prepared message to share your personal story on how this issue will impact you and your clients.