Health Care Reform Update. March 11, 2016

Transcription

1 Health Care Reform Update County Management and Risk Conference Galveston, TX March 11, 2016

2 Quincy Quinlan Director, Health and Benefits Services Department Texas Association of Counties

3 Health care reform: high level timeline Health Care Reform enacted Summary of Benefits and Coverage (SBC) and uniform glossary Supreme Court ruling on Health Care Reform constitutionality Individual mandate/public Exchanges open Premium and cost-sharing subsidies Medicaid not expanded in Texas gaps in coverage Additional market reforms/group health plan mandates No pre-existing condition exclusions Allow $500 carryover for health FSA Employer Mandate (50+ EEs) Sale of health insurance across state borders permitted Report value of health coverage on W-2 (over 250 EEs) Additional Medicare tax on wages $2,500 cap on employee pretax contributions to health FSAs Notice to employees of exchanged-based coverage options Public exchange development Initial open enrollment in public exchanges Adult child coverage to age 26 No lifetime dollar limits/restricted annual dollar limits on essential health benefits No pre-existing condition exclusions for enrollees under 19 First-dollar preventive care coverage No rescissions and other group health plan mandates Employer mandate (100+EEs) Auto enrollment? (No)! States may open exchanges to large employers Excise Tax Ongoing guidance, evolving interpretations, additional legislation and enforcement 3

4 Zubik v. Burwell June 30, 2014 Supreme Court issued Burwell v. Hobby Lobby opinion (first contraceptive mandate case) Court said, for the first time, that a closely held forprofit corporation had religious freedom protection under the Religious Freedom Restoration Act, and thus should be exempted from contraceptive mandate if it had strong religious beliefs Administration tried to fashion exemptions for church related entities such as schools and hospitals

5 Zubik v. Burwell Zubik v Burwell is 4 th major challenge to Affordable Care Act to be heard by U.S. Supreme Court (and second contraceptive mandate case) Hearing set for March 23, 2016 Issue is again the contraceptive mandate Contraceptive mandate states non grandfathered plans must cover contraception for women (at least 1 method in each of 18 categories) at no out ofpocket cost no copay, no deductible, no coinsurance Men s contraception does not have to be covered

6 Zubik v. Burwell The ACA ordered the government to provide preventive care for women, but did not spell that out, leaving it to government agencies. Two Cabinet agencies came up with the list of contraceptive techniques and services, and required employers with fifty or more employees to provide that kind of coverage in their own health insurance plans, or pay very stiff fines.

7 Zubik v. Burwell When the statute was passed, religious employers (mostly houses of worship and religious orders) were exempted from the mandate Exemption based on the idea that they were more likely to employ women who, like the institutions themselves, had religious objections to birth control methods.

8 Zubik v. Burwell The accommodation currently requires the institution to notify the government of its objection; The government argues the notification is enough to excuse that institution from any direct role in providing contraceptives to their female employees. The government, working with the institution s health insurer, provides the free access to contraceptives for those employees.

9 Zubik v. Burwell The government concedes religiously affiliated employers have legitimate religious concerns The government has also insisted that those institutions cannot use those views to bar the government from working out a way to ensure that women have access to contraceptives, to protect their health and protect their families, even if they are employed by religious institutions that object

10 Zubik v. Burwell The religious institutions counter argument: the plans that will provide for the access are those institutions own heath insurance systems. The government will hijack those plans to provide the contraceptives.

11 Zubik v. Burwell The mere act of notifying the government of a religious objection, works as a trigger to the government to go forward with contraceptive coverage through the employers plans. That confronts the employers with the choice of violating their religious beliefs or paying the heavy fines.

12 Zubik v. Burwell Employers have suggested alternative approaches: allow female employees to obtain their own contraceptive coverage through public exchanges; the government itself provide birth control services directly to the femaleemployees or other alternatives that simply leave the objecting religious institutions out of any role in the process. Zubik v Burwell commentary tohear birth control challenges/

13 New Legal Challenge Federal judge ruled September 9, 2015 that House GOP has legal standing to sue President Obama s administration over implementation of Affordable Care Act Speaker Boehner can pursue claims the administration injured Congress when it paid costsharing payments which Congress had not approved

14 New Legal Challenge Judge said she was not yet ruling that the President overstepped his constitutional powers. Ruling was that the constitutional trespass alleged in the case would inflict a concrete, particular harm on the House for which it has standing to seek redress in the courts. Administration will appeal

15 Sissel v. Dep t of Health and Human Services Suit authorized by House of Representatives. First suit ever filed by the House or the Senate to challenge the enforcement of a law Filed November, 2014, Challenged the employer mandate delay The judge dismissed that challenge

16 Sissel v. Dep t of Health and Human Services Also challenged the reimbursement to insurance companies that reduced co pays and deductibles for plans sold on the exchanges operated by the states

17 New Legal Challenge GOP said Congress never authorized the reimbursement and specifically reject the administration s request for the funds What s at stake: Nearly 6 million people on the public exchanges with incomes between 100% and 250% of the federal poverty level rely on those payments

18 New Legal Challenge Administration argued congressional intent for the payments shown by passage of the act in 2010 GOP says funds have to be appropriated every year

19 New Legal Challenge Judge says although she is aware of the political ramifications, she believes the case is purely constitutional Supreme Court denied the petition for writ of certiorari January 19, So that case is over

20 Recent ACA Poll 60% of Republicans responding to a Kaiser Family Foundation survey, which was released last week, said the ACA should be repealed and then replaced with a Republican alternative. By contrast, just 8% of Democratic respondents back repeal, while a majority 54% say Congress should work to improve the health care reform law.

21 Recent ACA Poll 59% of Democratic respondents said the country should focus more on other issues, and 38% said it is important for the country to continue the debate over the health care reform law. 40% of Republican respondents said the country's focus should shift away from the ACA, while 58% said it is important to continue the debate over the health care reform law.

22 Future of ACA: Factors to Consider Senate: 54 Republicans, 44 Democrats, 2 Independents House of Representatives 246 Republicans, 188 Democrats, 1 vacancy GOP controls 31 governorships and both houses of legislature in 30 states

23 Future of ACA: Factors to Consider Majority not the same as control Majority party sets agenda But, large House GOP majority does not ensure an easier time for House GOP leadership Need 60 votes in Senate to pass controversial bills

24 Future of ACA: Factors to Consider Good news: national debate about health care policy and costs Bad news: the debate is partisan; finding solutions does not seem to be the focus

25 Future of ACA: Factors to Consider Changes to ACA being proposed include: Full time employee definition should be 40 hours per week, not 30 Add a copper plan Repeal mandatory auto enrollment Repeal excise tax Repeal or modify individual and employer mandates Problem: presidential veto of repeal measures, at least until 2017

26 Future of ACA: Factors to Consider Changes to ACA being proposed include: GOP Limit exclusion for employer coverage to $12,000/$30,000 Standard deduction of $12,000/$30,000 for individuals purchasing coverage Limit exclusion for high income individuals

27 The ACA has been amended Act amended almost 20 times (mostly technical changes) Eliminatedauto enrollment requirement Auto enrollment provision amended the FLSA Would have required employers with 200 employees or more to automatically enroll new employees; and give notices to employees about opting out of coverage

28 The ACA has been amended Changed definition of large employer to 51 or more employees (giving states the option to expand to 100) Postponed deadline for Cadillac Tax But, over 50 repeal votes in the House

29 Ongoing variable hour/seasonal employees Standard Measurement Period Look back at hours worked by variable hour employee to determine eligibility for coverage Employer choose length from 3 to 12 months Standard Administrative Period Count hours, offer & enroll in coverage Maximum length of 90 days Cannot reduce or lengthen the measurement or stability period Overlaps with prior stability period Standard Stability Period Coverage remains available regardless of hours worked during stability period Full time employees Cannot be shorter than the standard measurement period Must be at least 6 months Non full time employees Stability period cannot be longer than the standard measurement period

30 Large Employer Counties and Districts in 2015 must determine whether they employ at least 100 full time equivalent employees subject to the employer mandate Classify employees who work on average at least 30 hours/week (or 130 hours/month) as full time for Affordable Care Act purposes Employees who work seasonal or variable hours may be eligible for coverage. Employers need to adopt a lookback measurement period to determine eligibility If your County uses seasonal or variable hour employees, ask for help with this process.

31 How to Calculate the number of Full Time Employees including Full-Time Equivalents (FTEs) for determining large employer status 1. Count the number of employees who worked 30 or more hours per week during the month. This will typically be your regular full time positions, but will also include seasonal workers. 2. Calculate the total number of hours worked by NON full time employees (those not included in Step 1). Use a maximum of 120 hours per employee. 3. Divide the result from Step 2 by 120 and round down to nearest whole number. This is your total FTEs for the month. 4. Add the count from Step 1 to the result from Step 3. This is your total full time employees for the month. 5. Perform steps 1through 4 for each month of the prior calendar year and divide the total by 12 to determine your full time employee average for that year. NOTE: If the sum of full time employees and FTEs is greater than 50 for 120 days or less during the year, and the employees in excess of 50 who were employed for 120 days or less are seasonal workers, the employer is not an applicable large employer. If the result in Step 5 is 50 or greater, the employer is an applicable large employer (ALE) for the current calendar year*. * Beginning in For 2015, "large employer" status applies when there are 100 or more Full Time employees including FTEs. However, employers with Full Time employees including FTEs must submit 6056 reporting for 2015.

32 Large Employers in 2015 must: Offer minimum essential coverage (MEC) to at least 70% of full time employees and their dependents or risk paying a penalty MEC is broadly defined, but includes most forms of insured or self insured employer sponsored group health plan coverage. Determine whether the health plan coverage meets the affordability standards of Health Care Reform and is of minimum value (MV)

33 To be affordable, the employee only coverage under the lowest cost plan cannot be more than 9.5% of an employee s total household income To provide minimum value, the plan must cover at least 60 percent of the total cost of covered care. Adapt payroll systems to comply with the employer data reporting requirements of Health Care Reform (beginning with 2015 coverage reported in 2016)

34 Large Employer definition is expanded in 2016 to Counties and Districts that employ 50 or more full time equivalent employees subject to the employer mandate. If your County has less than 50 full time employees and some part time employees, ask for help with the FTE calculation. Employers with 50 or more full time equivalent employees must offer minimum essential coverage to at least 95% of full time employees and their dependents or risk paying a penalty

35 No Employer Plan ( Pay ) Employer Shared Responsibility (ESR) payment of $2,000* x total number of full time employees 2015: Penalty (ESR) is triggered if an employer with 100 or more full time equivalent employees offers coverage to less than 70% of its full time employees, and any employee receives subsidized coverage through Marketplace 2016: Penalty (ESR) is triggered if an employer with 50 or more full time equivalent employees offers coverage to less than 95% of its full time employees, and any employee receives subsidized coverage through Marketplace Full Time employee for penalty calculation is defined as an employee who works 30 or more hours per week on average *ESR amounts will increase annually based on a statutory inflation adjustment Employer Offers Coverage ( Play ) Employer plan pays less than 60% of covered costs ( minimum value test ) OR Employee contributions for self only coverage exceed 9.5% of W 2 Box 1 or household income ( affordability test ) AND Employee household income between 133% and 400% of federal poverty level THEN Pay lesser of $3,000 for each FTE that receives a premium subsidy for a Marketplace plan, or $2,000 x total number of full time employees All of these penalties are actually indexed to inflation beginning

36 New IRS Reporting Requirements Internal Revenue Code Section: 6055 B Forms: 1094-B and 1095-B or 1095-C Part III if large employer offers a self-insured health plan Filed By: Plan Sponsor Provided to: All insured employees and IRS Note: A Forms will be issued by the Public Exchange for anyone who purchased coverage there Internal Revenue Code Section: 6056 C Forms: 1094-C and 1095-C Parts I and II Filed By: Employer (if 50+ full-time employees, including FTEs) Provided to: All employees who were full-time during any month in 2015 and IRS

37 Why This Reporting Is Required The IRS will use section 6055/6056 reporting to: Determine whether individuals are subject to fines under the individual mandate Individuals must have Minimum Essential Coverage* (MEC) for themselves and dependents or pay a penalty under the Individual Mandate, generally: Greater of 1% of income^ or $95/individual for 2014 (capped at $285 per family) Greater of 2% of income^ or $325 for 2015 (capped at $975 per family) Greater of 2.5% of income^ or $695 for 2016 (capped at $2,085 per family) * ^ Income above the tax return filing threshold

38 Why This Reporting Is Required The IRS will use section 6055/6056 reporting to: Determine whether employers are subject to penalties under the employer mandate Employers must offer MEC to 70% of full-time employees (30+ hours/week) and their dependents in 2015 or pay a penalty. Increases to 95% in Employers who fail to offer coverage to 70% of FTEs are subject to a fine of $2,000/year for each full-time employee, excluding the first 80 employees (this exclusion drops to 30 employees in 2016). Employers who offer coverage, but have employees who receive a subsidy or tax credit because the coverage offered was not affordable or did not provide minimum value, are subject to an annual penalty of $3,000/employee receiving a tax credit, capped at $2,000 x the number of full-time employees.

39 Which Employers Must Report For ACA purposes, employers must do 2 separate calculations regarding their employees: Determine whether a part time, variable hour, or seasonal employee must be offered health benefits: Must offer coverage if the employee works an average of 30 or more hours per week over the Measurement Period Determine whether the employer is considered an Applicable Large Employer (ALE): 50 or more full time employees including FTEs (must include part time hours in calculation) ALEs* must report to IRS under Sections 6055/6056 *and employers who provide health benefits under a self insured plan, regardless of size

40 Old Reporting Dates January 2015 Employer shared responsibility requirement begins for employers with 100+ FTEs By January 31, 2016 Distribute information forms to employees: County provides form 1095-C and if Pooled, TAC provides form 1095-B January-December 2015 information for this period will be reported in 2016 Employers must be prepared to report which months health coverage was offered for all full-time employees. If coverage was not offered, a reason must be provided for each month employee was a full-time employee. Remember that full-time is defined as working 30 or more hours per week on average over your standard measurement period. By February 29, 2016 * (because Feb 28 is a Sunday) Submit transmittal forms and copies of employee information forms to IRS: County files form 1094-C and if Pooled, TAC files form 1094-B * Employers with over 250 returns must file electronically by March 31, 2016

41 Delay in ACA Reporting Furnishing Deadline 6055 & 6056 Reporting 2/1/16 3/31/16 41

42 Delay in ACA Reporting Furnishing Deadline 6055 & 6056 Reporting Two Month Extension 2/1/16 3/31/16 42

43 Delay in ACA Reporting Filing Deadline 6055 & 6056 Reporting 2/29/16 (paper) 3/31/16 (electronic) 5/31/16 (paper) 6/30/16 (electronic) 43

44 Delay in ACA Reporting Filing Deadline 6055 & 6056 Reporting Three Month Extension 2/29/16 (paper) 3/31/16 (electronic) 5/31/16 (paper) 6/30/16 (electronic) 44

45 Form 1095-B (Health Coverage statement for members) C TAC will file for HEBP Pooled groups / Plan Sponsor will file for fully insured, J non HEBP groups. Self insured groups with less than 50 employees must file. K Self insured groups who provide coverage for Retirees and COBRA participants must file for years Retiree/COBRA participant was not an employee.

46 Form 1094-B (for 1095 B Transmittal to IRS) TAC HEBP or Plan Sponsor will file for fully insured groups. Self insured groups with less than 50 employees must file. Self insured groups who provide coverage for Retirees and COBRA participants must file for years Retiree/COBRA participant was not an employee.

47 Form 1095-C (Employee information statement)

48 Form 1095-C Parts I and II K K K K K Employers with 50 or more Full-Time and Full-Time Equivalent K employees (as defined by ACA) must complete Part I and Part II. K k

49 1095-C, Part II: Line 14 Codes Summary Line 14 Offer of Coverage Codes [E=Employee S=Spouse D=Dependent] [HI=Household Income] [MV=Minimum Value] [MEC=Minimum Essential Coverage] 1A: MV MEC to FT employee affordable based on 9.5% of FPL plus MEC to S and Ds Subsection (b) penalty: Precluded by this offer. Line 15 must be left blank if 1A is used. Tax Credit: Individual with HI less than FPL is not eligible. Note: If offered for all 12 months, this code also allows alternative furnishing method for statement to employee. In line 16, if employee enrolls, enter 2C. If not, 2G (apparently). 1B: MV MEC to E only Subsection (b) penalty: Applies if this employee gets tax credit unless (1) line 15$ amount is affordable based on HI or (2) codes 2B, 2C (preventing credit), 2D, 2F-H, or 2I in line 16. Tax Credit: Only E not eligible if $ amount in line 15 is affordable based on HI 1C: MV MEC to E and MEC to D children 1D: MV MEC to E plus MEC to S and Ds 1E: MV MEC to E plus MEC to S and Ds 1F: Non-MV MEC offered to E; E plus S; or E,S and Ds 1G: Offer to E who is not FT for any month and who enrolled in Self-Insured Health Plan for any month Subsection (b) penalty: Same as above Tax credit: E and D children not eligible if $ amount in line 15 is affordable based on HI Subsection (b) penalty: Same as above Tax credit: E and S not eligible* if $ amount in line 15 is affordable based on HI (*for months coverage was offered) Subsection (b) penalty: Same as above Tax credit: E, S, and D children not eligible* if $ amount in line 15 is affordable based on HI (*for months coverage was offered) Subsection (b) penalty: Applies if this employee gets tax credit unless codes 2B, 2C (preventing credit), 2D, or 2I in line 16 (note: 2F H affordability safe harbor codes would not help) Tax credit: E, S, and Ds, as applicable, eligible unless code 2C in line 16 (2C trumps in line 16) Subsection (b) penalty: N/A (employee is not FT) Tax credit: E (and any enrolled S and Ds) not eligible for any month Notes: Enter this code in all 12 months box only, leave lines 15 and 16 blank, but complete Part III (note: only instance where information about a non-ft employee is reported in Part II) 1H: No offer (including offer of non-mec) or not offered to at least 70% of FT employees (95% in2016) Subsection (a) penalty: Applies if any full-time employee receives a tax credit, unless codes 2B, 2D, or 2I in line 16 (note: 2C and 2F H, affordability safe harbor codes, will not apply). Tax credit: E, S, and Ds would be eligible

50 1095-C, Part II: Line 16 Codes Summary Line 16 Safe Harbor Codes [E=Employee] [MV=Minimum Value] [MEC=Minimum Essential Coverage] [LNP=Limited Non-Assessment Period] 2A. E not employed in month Subsection (b) penalty: Inapplicable in any month with this code Note: Not used if E was employed on any day of month, including the month employment terminates. 2B. E not FT employee for month and not enrolled in MEC Subsection (b) penalty: Inapplicable for any month E is not FT Notes: If E enrolled for any month, use 2C instead. If E is in Initial Measurement Period, use 2D instead. If E is not FT for any month and enrolls in coverage for any month, leave blank and use 1G in line 14. E who is neither FT nor enrolled for any month in reporting period will not be included on any report. 2C. E enrolled in MEC Subsection (b) penalty: Inapplicable for any month E enrolled (tax credit not possible) Important note: 2C trumps all other codes! 2D. E in LNP (6 LNPs) Subsection (b) penalty: Inapplicable for any month E is in LNP Note: If 2E applies, use that instead. 2E. Multiemployer relief Subsection (b) penalty: Inapplicable for any month this code applies to E Note: Do not use codes 2F H, even if they may also apply. 2F. Form W-2 safe harbor Subsection (b) penalty: Inapplicable if MV offered to E (codes 1B E entered on line 14) Notes: Must be used for all months of year E is offered coverage. Not used if 2C or 2E apply. 2G. Federal Poverty Level Subsection (b) penalty: Inapplicable if MV offered to E (codes 1B E entered on line 14) safe harbor Notes: May be used for any applicable month. Not used if 2C or 2E apply. 2H. Rate of pay safe harbor Subsection (b) penalty: Inapplicable if MV offered to E (codes 1B E entered on line 14) Notes: May be used for any applicable month. Not used if 2C or 2E apply. 2I. Non-CY transition relief applies to E Subsection (b) penalty: Inapplicable for months before start of 2015 PY (if certain conditions met)

51 Form 1095-C - Part III K K Employers K who sponsor a self-insured health plan and have 50 or more full-time K employees including FTEs (as defined by ACA) must also K complete Part III. This satisfies the requirements for Section These K employers will also need to file Forms 1094-B and 1095-B if they offer K coverage k to non-employees, such as Retirees or COBRA participants.

52 Form 1094-C page 1 (for 1095 C transmittal to IRS)

53 Form 1094-C page 2 (Employer transmittal to IRS)

54 Employers are unprepared for this reporting Survey in April, 2015 found only 10% of 480 employers had a solution to this issue 16% had not even considered a solution or do not know what kind of solution to consider mostly small employers with less than 1,000 full time employees Line by line examination of the forms and the templates used to fill out the forms at Treasurers conference in April

55 Transitional Reinsurance Patient Centered Outcomes Research (PCORI) Fee 2014: the proposed national per capita contribution rate will be $63 per covered life per year (TAC paid $1,752,975 on behalf of pool members.) 2015 $ : $27 Program ends in : $1 per member per year 2013: $2 per member per year 2014: For policy and plan years beginning on or after Oct. 1, 2014, and before Oct. 1, 2019, the applicable dollar amount is further adjusted to reflect inflation

56 Excise Tax In 2018, if the county medical plan s total cost for employee or family exceeds a certain cost level as determined by the government County will be charged a 40% excise tax on amounts over the designated thresholds Based on current estimates, over 70% of TAC HEBP groups will exceed the cost threshold in 2018 and owe this tax 2018 cost threshold: $10,200 ($850/month) for employee only coverage, $27,500 ($2,291/month) for family coverage (plus adjustments) Thresholds to be adjusted in 2019 and thereafter

57 Delay in Cadillac Tax H.R signed into law on December 18, 2015: Makes important changes to 40% high cost employer-sponsored health coverage excise tax ( Cadillac Tax ) Provides for a two-year delay. (The tax will not be effective until 2020) Makes the tax deductible for employers Commissions a study by GAO on the appropriate benchmark for age and gender adjustment 57

58 Policy Arguments For And Against Excise Tax Tax was proposed to slow the rate of growth of health care costs and finance expansion of health coverage Targeted at Cadillac health plans most generous health plans with low deductibles and little cost sharing (coinsurance and copays), usually paid for by employers Do county plans fit this description?

59 Policy Arguments For And Against Excise Tax con t For: benefit rich plans insulate workers from the high cost of care and encourage overuse of care such as unnecessary tests and hospital visits that raise the cost of care across the country Against: plans may be more costly, and thus subject to the tax, because of factors such as plan participants health status, age, gender, type of work

60 Policy Arguments For And Against Excise Tax con t For: employers need renewed focus on cost control, and that when consumers must pay a share of the cost (higher deductibles, copays and coinsurance) they will be less likely to overuse care Against: People with chronic conditions will pay much more for health care Evidence not conclusive that higher deductible plans lead to lesser spending Some foregoing care because of higher cost

61 Policy Arguments For And Against Excise Tax con t For: Cadillac tax necessary because high cost health plans contribute to longstanding unequal tax benefit problem that began during World War II Wages were frozen Employers allowed to offer health benefits tax free in lieu of wages Employers thus had incentive to make health coverage part of compensation package Employers began to compete on health benefits

62 Policy Arguments For And Against Excise Tax con t For: Cadillac tax necessary because high cost health plans contribute to longstanding unequal tax benefit problem that began during World War II Tax free health care disproportionately benefitted higher income earners because they had higher tax rates and therefore enjoyed the biggest tax break Those without such coverage did not benefit

63 Policy Arguments For And Against Excise Tax con t Tax free health care disproportionately benefitted higher income earners because they had higher tax rates and therefore enjoyed the biggest tax break Those without such coverage did not benefit Exclusion has significant impact on federal budget

64 Tax Expenditures for Benefits 3,000 2,500 2,674 2,000 1,500 1, Projected Dollars in Billions 1,000 1, Exclusion of employer contributions for medical insurance premiums and medical care Exclusion of employersponsored pension plan contributions and earnings (DB & DC) Deductibility of mortgage interest on owneroccupied home Deductibility of nonbusiness state and local taxes Decuctibility of charitable contributions, other than education and health

65 Strong opposition to any attempt to eliminate the exclusion But argument for more tax equity was strong in 2010 Cadillac tax seen as next best alternative to cap the exclusion Resulting strange political bedfellows: trade unions and organizations like U.S. Chamber of Commerce doing joint lobbying to repeal the tax

66 Internal Revenue Code 4980I (excise tax statute) 40% excise tax on any excess benefit, defined as excess of aggregate cost of applicable coverage for employee for the month over the applicable dollar limit for the employee for the month Applicable coverage defined as group health plan coverage provided to an employee by an employer which is not included in the employee s gross income. Includes flexible spending accounts (FSAs), health savings accounts (HSAs) and health reimbursement accounts (HRAs)

67 Internal Revenue Code 4980I (excise tax statute) Cost of applicable coverage is determined under rules similar to those for determining the applicable premium for COBRA The excise tax itself is excluded from the cost of the coverage The cost of coverage has to be calculated separately for self (employee) only coverage and other thanself coverage Special rules for determining the cost of applicable coverage for retirees, health FSAs and HSAs

68 Internal Revenue Code 4980I (excise tax statute) A health cost adjustment percentage will be applied to the baseline dollar limits for 2018 to determine the applicable dollar limits for 2018 A cost of living adjustment will be applied to determine applicable dollar limits for subsequent years MAJOR ISSUE: The adjustment is indexed to regular inflation rate which is 2 to 3 times less than medical inflation rate

69 Internal Revenue Code 4980I (excise tax statute) The applicable dollar limits may also be increased by an age or gender adjustment for certain employers An additional amount is added to the dollar limits for qualified retirees Limits also increased for employees in organizations where the majority of employees are in high risk occupations or work on high tension lines

70 IRS finally issued first notice of rulemaking for Excise Tax on February 23, 2015 Notice discusses the following issues: Definition of applicable coverage Determination of the cost of applicable coverage Application of the annual statutory dollar limit to the cost of applicable coverage

71 IRS anticipates issuing a second notice to invite comments on potential approaches to issues not addressed in the first notice, including procedural issues relating to the calculation and assessment of the excise tax. IRS will issue proposed rules after receiving comments on both notices. More comments will be made after proposed rules are published Then final rules will be adopted

72 Kaiser Family Foundation estimates 26% of employers could be subject to the Cadillac tax in 2018 unless they make changes to their plans They expect that number to grow to 30% in 2023 and 42% in 2028, if plans remain unchanged and health benefits costs increase at expected rates

73 Possible responses to the tax: Insurers pass on the tax to employers in the form of higher premiums (tax is not deductible) Employers offer plans that have less benefits (higher deductibles, copays and coinsurance) Employers ending contributions to FSA and HSA accounts (this is really concerning) No move nationally for employers to stop providing coverage

74 Management of the excise tax requires a sustainable solution % Excise Tax Cap Ceiling Improve health of plan participants Support Wellness Programs Reduce risk factors (prevention, early detection) Manage high cost claim risk (condition management) Manage cost trend by reducing claims and encouraging employees to make wise healthcare choices Plan value needs to be low enough to avoid the excise tax Plan costs need to be minimized, while still attracting and retaining employees 2014 Minimum plan of 60% actuarial value and affordable to employees Plan design needs to be high enough to avoid penalties 74