TRENDING HEALTHCARE TOPICS Cadillac Tax & …...EMPLOYEE BENEFITS TRENDING HEALTHCARE TOPICS Cadillac Tax & Other Fascinating Subjects The Partners Group is committed to protecting

EMPLOYEE BENEFITSEMPLOYEE BENEFITS

TRENDING HEALTHCARE TOPICS

Cadillac Tax & Other Fascinating Subjects

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Fascinating Subjects

Presented bySarah Friend, The Partners Group

Iris Tilley, Barran Liebman LLP

February 9, 2016


� Welcome

� 2016 Federal Budget Bill (PATH) & Its Effect on the ACA

Today’s Agenda

� Cadillac Tax

� Employer and Health Plan Reporting

� The Future of ACA


Employee

Benefits

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2016 FEDERAL BUDGET BILL (PATH)2016 FEDERAL BUDGET BILL (PATH)


� PATH- ‘Protecting Americans From Tax Hikes’ Act of 2015

� Signed and effective December 18, 2015

� Significant changes to three ACA taxes:

2016 FEDERAL BUDGET BILL (PATH)

o Health Insurance Industry tax (HIT)o Medical device taxo High-cost plan tax (HCPT) or Cadillac tax


� Medical Device Taxo Permanent, ACA tax, levied on manufacturers or importers of

devices sold after 12/31/12 (think o Originally projected to net nearly $30 billion over the course of a

decadeo Imposes two-year moratorium/suspension on the 2.3% tax for

devices sold January 1, 2016 through December 31, 2017


� HIT or Health Insurance Industry Tax o Permanent, annual fee paid by health insurers beginning in 2014o Raised $8 billion in 2014, will increase to $14.3 billion annually by 2018o Applies to insured medical, dental and vision planso Imposes a one-year moratorium on the collection of the ACA’s health

insurance providers fee for 2017o Should result in lower increases for insured group health renewals for

2017 (worth 3-4% of premium)


And the big one!

� Cadillac Tax

o Original intent was to discourage companies from offering rich plans instead of higher wages

o Projected to raise approx. $87 billion in the first eight years (although this is a moving target)


this is a moving target)

o Delayed implementation of the ACA’s Cadillac tax on high-cost group health coverage for two years, until 2020

o Also PATH removed a provision prohibiting the Cadillac tax from being deducted as a business expense; and

o Requires a study to be conducted on the age and gender adjustment to the annual limit.


CADILLAC TAXCADILLAC TAX


� Part of the 2010 ACA legislation

� Originally intended to take effect in 2013

� Immediately delayed until 2018 following the ACA’s enactment

Cadillac Excise TaxEffective 2018 2020

� As noted earlier, implementation has been delayed another two years based on the 2016 Federal Budget bill

� Both parties are calling for its repeal; no doubt the approved delay was to get through the 2016 elections without a stalemate


� A 40% excise tax on high-cost health coverage, referred to as the "Cadillac Tax“ is one of the most significant revenue provisions to fund the ACA

� The Cadillac tax applies generally to coverage under a group health plan excluding stand alone

Cadillac Excise TaxEffective 2018 2020

under a group health plan excluding stand alone vision and dental programs and those programs paid exclusively with after-tax dollars by the employee

� There is no exception for Grandfathered group health plans


� The Cadillac tax imposes a limit on the value of “tax free” benefits that employees can receive through their employer sponsored health plans

� The current tax exclusion dates back to World War II (Emergency Stabilization Act, Oct. 1942) when wage controls were enacted

Cadillac Excise TaxBackground

wage controls were enacted

� Employer Sponsored Insurance (ESI) tax subsidy (fringe benefits not paid out in cash) didn’t viola te the wage ceiling; this lead to pensions, medical insurance, paid holidays and vacations

� Currently, there is no limit on the value of the existing ESI tax subsidy


� Tax is expected to generate $87 billion dollars in the first 10 years

o Down 42% from original projections

� Employers are already scaling back their plans to a void the tax

o 17% of employers made changes (2015)

Cadillac Excise TaxEffective 2020

o 17% of employers made changes (2015)

o 40% were seriously considering making changes

� 15%-30% of plans were expected to be impacted in 2018 and 75% of plans will be impacted by 2029- no new projections as of yet for 2020

� Tax was intended to be a significant funding mechanism for the ACA


It’s Complicated! Final rules not yet released

� Two notices have been issued by the IRS

o Notice 2015-16, with comments due back May 15, addresses:

• Definition of applicable coverage

Cadillac Excise TaxHow is the tax paid?

No sleeping

allowed!

No sleeping

allowed!

• Determination of cost of coverage

• Application of dollar limits

o Notice 2015-52, comments due back Oct. 1, addresses:

• Who will be liable to pay the excise tax

• How the tax will be allocated among the applicable taxpayers

• How the tax will be paid

• Who is the employer


� Applicable coverage includes:

o Coverage under any group health plan made available to the employee by an employer which is excludable from the employee's gross income under Section 106

o A group health plan is generally any employer plan that provides health care to employees

Cadillac Excise TaxDefinition of applicable coverage

provides health care to employees

o It includes any employer-provided health coverage that is excluded from income, including health FSAs, HRA funding, HSA contributions, on-site medical clinics (providing more than de minimus care), retiree coverage, and specified disease, illness, or hospital indemnity coverage (if the premium is excluded from gross income)


� Applicable coverage excludes:o Accident only or disability income, liability, supplemental liability,

workers' compensation, automobile medical, credit-only

o Other insurance coverage where medical care is secondary or incidental,

Cadillac Excise TaxWhat is not included?

o Long-term care,

o Stand-alone dental or vision,

o Government maintained plans primarily for military and their families, and

o Specified disease, illness, or hospital indemnity coverage (if the premium is not excluded from gross income).


� Cost is calculated on a monthly basis, based on the coverage in which the employee is actually enrolled

� Determined separately for self-only and other-than-self-only coverage.

� IRS intends this process to be similar to the COBRA

Cadillac Excise TaxDetermination of cost of coverage

� IRS intends this process to be similar to the COBRA premium determination process (particularly the concept of “similarly situated individuals”)

� Special rules for self-insured plans and various ty pes of account-based plans (e.g., health FSAs, HRAs, HSAs and Archer MSAs)


� Original dollar limits were set at $10,200 (self-on ly) and $27,500 (other-than-self-only); however, these limi ts will be adjusted before 2020 by a specified health cost fac tor

� After 2020 limits will be adjusted going forward fo r cost-of-living

� In addition, adjustments are permitted based on

Cadillac Excise TaxApplication of dollar limits

� In addition, adjustments are permitted based on

o Employee population’s age and gender mix (as compared to the national workforce)

o The high-risk status of the employee population (i.e. law enforcement, fire protection, out-of-hospital emergency care , etc.)

o Retiree status

� Note: other-than-self-only limit applies to multie mployer plan coverage


� It Depends……

o The “health insurance issuer” if the coverage is insured

o “The employer” if the coverage consists of coverage under which the employer makes contributions to an HSA or Archer MSA

o “The person (most likely an entity) that administers the plan benefits” (plan sponsor) in the case of any other applicable coverage (self funded)

Cadillac Excise TaxWho will be liable to pay the excise tax?

funded)

o More to come on this…


� IRC §4980I provides that each coverage provider’s applicable share of the total tax on an employee’s excess benefit will be commensurate with its share of the total cost of the benefit

� Other details not clear- for instance, what if insur er’s cost is under the threshold but an employer offers other applicable coverage that pushes over the threshold?

Cadillac Excise TaxHow the tax will be allocated among the applicable taxpayers?

� If a person (other than the employer )is the covera ge provider liable for the excise tax, that person may pass through all or part of the amount of the excise tax to the employer in some instances( i.e. an insurance carri er)

� Pass-through liability should not be included in an COBRA rates or in the determination to determine if the cost exceeds the applicable threshold


� At the end of each calendar year, the employer must calculate if any tax applies for each employee

� Employer must then notify each coverage provider (and the IRS) of the excise tax amount each provide r owes on its applicable share of the excess benefits with respect to each employee

Cadillac Excise TaxHow will the tax be paid?

� Each coverage provider is then liable to pay the to tal excise tax it owes

� No specifics yet as to the time and manner in which the excise tax is paid

� IRS and Treasury are considering designating IRS Form 720 (Quarterly Federal Excise Tax Return) as t he means to pay the tax


� Related employers would be aggregated and treated a s a single employer, but still much direction is neededo What applicable coverage is made available by an “employer”?o How are the “employer’s” employees taken into account for the age and

gender and high-risk professions adjustments?o Who is the “employer” responsible for calculating and reporting the excess

benefit?o Who is the “employer” who is liable for any penalty for failure to properly

calculate the tax imposed under § 4980I.

Cadillac Excise TaxWho is the Employer (Employer Aggregation)?

calculate the tax imposed under § 4980I.

� Cost of coverage is to be determined using rules si milar to those used to determine COBRA premiums

� The agencies anticipate potential timing issues for many plans

� Notice 2015-52 explains these and requested comment s on the IRS- proposed approaches and safe harbors


� Cost of coverage is to be determined using rules similar to those used to determine COBRA premiums.

� There are potential timing issues for many plans

Cadillac Excise TaxHow is cost of coverage determined?

� Notice 2015-52 explains these and requests comments on the IRS proposed approaches and safe harbors


1. Add aggregate premiums for health coverage + any salary reduction contributions to a health FSA+ any pre-tax premiums for applicable voluntary benefits + employer contributions to an HRA, FSA, HSA or MSA

Subtract the applicable threshold for the tax year

Cadillac Excise TaxThe Calculation

2. Subtract the applicable threshold for the tax year

3. Multiply by 40%

4. Equals the tax owed


� Self-only coverage, cost of $12,000 per year:

$12,000 - $10,200 (applicable limit)= $1,800 over limit

$1,800 x 40%= $720 excise tax due

Cadillac Excise TaxCalculation Examples

� Other-than-self-only coverage, cost of $30,000 per year:

$30,000 - $27,500 (applicable limit)= $2,500 over limit

$2,500 x 40%= $1,000 excise tax due


� Self-only coverage, cost of $12,000 per year, + $1,000 FSA contribution:

$13,000 - $10,200 (applicable limit) = $2,800 over limit

$2,800 x 40%= $1,120 excise tax due


� Other-than-self-only coverage, cost of $30,000 per year + $2,550 FSA contribution:


$5,050 x 40% = $2,020 excise tax due


� Self-only coverage, insurance premium of $7,200 per year, + $3,000 HRA +$1,000 FSA contribution + $600 pre-tax voluntary benefit premium:


$1,600 x 40% = $640 excise tax due


$1,600 x 40% = $640 excise tax due

� Other-than-self-only coverage, cost of $25,000 per year +$6,000 + $2,550 FSA contribution + $1,200 pre-tax voluntary benefit premium:


$7,050 x 40% = $2,900 excise tax due


� Monitor plan design value closely – an easy, ‘go to’ fix

� Maintain stand-alone vision and dental plans

� Consider changing voluntary benefits from pre-tax premium payment to post -tax (accident,

Cadillac Excise TaxConsiderations & Strategies

tax premium payment to post -tax (accident, critical illness, cancer policies)

� Manage FSA plan closely - many employers consider eliminating this option an easy fix if other applicable coverages are pushing the limit

� Reduce or eliminate employer contributions to HSA or HRA


� Don’t assume the Cadillac tax will be repealed -start monitoring and planning NOW to take advantage of the two-year delay

� Don’t forget about negotiations and adopting CBA language that will allow flexibility/address this issue in 2020

Cadillac Excise TaxConsiderations & Strategies

issue in 2020

� Educate employees so they are in the loop

� Identify potential strategies and give plenty of notice if a change will be made to avoid tax liability

� Communicate, communicate, communicate!


EMPLOYER & HEALTH PLAN REPORTING


� On Dec. 28, 2015, the IRS issued Notice 2016-4, delaying the due dates for ACA reporting

� This reporting requires that applicable forms are delivered to both the IRS and individuals

o The due date for furnishing forms to individuals has been extended from Feb. 1, 2016, to March 31, 2016 .

ACA REPORTINGDeadlines Extended

from Feb. 1, 2016, to March 31, 2016 .o The due date for filing forms with the IRS has been extended from

Feb. 29, 2016, to May 31, 2016 (or, from March 31, 2016, to June 30, 2016, if filing electronically).


� Section 6055- Health plan or minimum essential cover age (MEC) reporting

o Supports the Individual Mandate: reporting will provide proof to subscribers of enrollment in coverage

o Applies to providers of minimum essential coverage, such as health insurance issuers and employers with self-insured health

ACA REPORTINGDeadlines Extended

health insurance issuers and employers with self-insured health plans

� Section 6056- applies to applicable large employers (ALEs)

o Supports the Employer Mandate; reporting will communicate to the IRS how the ALE is responding to the requirement to provide coverage, and also provide documentation of this response to all full-time employees

o Generally applies to employers with 50+ full-time employees


■ Form 1094-C

■ Form 1095-C

Code Confusion


■ Certifications of Eligibility

FORM 1094-C, LINE 22Overview

■ Employers aren’t required to check any boxes■ Employers can check more than one box


■ C. Section 4980H Transition Relief

FORM 1094-C, LINE 22Rules of Thumb

■ Other codes are more employer specific


■ These lines are used to show the IRS:

FORM 1095-C, Lines 14-16Overview

■ These lines are not used to show the IRS:


■ Line 14:

FORM 1095-C, Lines 14-16Rules of Thumb

■ Line 15:

■ Line 16:


■ For 2015 forms, a good-faith effort will suffice

■ Subject to waiver and reduction, penalty amounts are:

ACA Reporting Enforcement


THE FUTURE OF THE ACA


� Public support for the ACA has dipped

o According to the most recent Kaiser Family Foundation Pole:

o 46% of Americans view the law unfavorably

o 40% view it favorably

o Increasing costs of exchange health coverage continues to

THE FUTURE OF ACAPublic Status

o Increasing costs of exchange health coverage continues to frustrate individuals

� Some aspects of the ACA remain popular

o Ban on preexisting-condition exclusions

o Dependent coverage through age 26


THE FUTURE OF ACACurrent Political Status

� House vote to repeal ACAo The house successfully voted to repeal the ACA on January

6, 2016

o President Obama vetoed; republicans did not have sufficient votes to override veto

� Alternatives to repeal� Alternatives to repealo Republican representatives have publically stated that the

party needs to look at ACA replacements in the place of an appeal

o Some aspects of the law are popular

o The rollout of ACA requirements was always designed to make it difficult do a straight repeal

Source: http://www.nytimes.com/2016/01/07/us/politics/house-votes-to-send-bill-to-repeal-health-law-to-obamas-desk.html


THE FUTURE OF ACAElection

� Obama term to end January 20, 2017

o Remainder of the term will be used to push through priority regulation

o Key components of ACA are in place

o DOL fiduciary rules are priority

� Leading candidate positions:

o Donald Trump: Would repeal (maybe)

o Ted Cruz: Has previously endorsed repealing only Title I

o Marco Rubio: Would repeal and replace the ACA

o Hilary Clinton: Would continue to enact the ACA

o Bernie Sanders: Would replace the ACA with a single-payer program


THE FUTURE OF ACA2016 & 2017

� Two significant pieces of ACA regulation remain outstanding:

o Nondiscrimination rules for insured plans

o Cadillac tax (delayed until 2020)

� Additional guidance is also expected on ACA topics:� Additional guidance is also expected on ACA topics:

o Provider nondiscrimination

o ACA Reporting

o W-2 Reporting


Questions??

TRENDING HEALTHCARE TOPICS

Please type your answers in the questions box in the webinar panel.


Thank you for the opportunity to present to

The Partners Group is committed to protecting the privacy of your account information, and we trust that you will show the same sensitivity regarding the content of this presentation. Reproduction or further distribution is strictly prohibited.The Partners Group is committed to protecting the privacy of your account information, and we trust that you will show the same sensitivity regarding the content of this presentation. Reproduction or further distribution is strictly prohibited.

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TRENDING HEALTHCARE TOPICS Cadillac Tax & …...EMPLOYEE BENEFITS TRENDING HEALTHCARE TOPICS Cadillac Tax & Other Fascinating Subjects The Partners Group is committed to protecting