CESSE Handout

8/17/2019 CESSE Handout

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Your Glide Path to the Cadillac Tax

What’s the point of the tax? The Aordable Care Act (ACA) expanded health coverae to !illions" The hih#costplan tax ($CPT)% best &no'n as the Cadillac Tax% helps to cover the cost of theexpansion b* taxin e!plo*ers that provide +hih#cost+ health coverae to theire!plo*ees"

The tax is also intended to help the ,"-" curb our overall spendin on health care"./! sure *ou/ve seen the charts and raphs" We spend !ore in the ,"-" on healthcare than an* other countr* and our life expectanc* is the lo'est a!onco!parable nations" 0cono!ists ('ho see! to be the onl* proponents of the taxleft) believe that the Cadillac Tax 'ill pro!pt chanes to the s*ste! that 'illpositivel* aect this trend" .t is anticipated that e!plo*ers 'ill put plans in place'ith hiher deductibles and patients 'ill adopt the consu!er behaviors the* rel* on'hen purchasin other oods and services 'hen the* are footin the bills"

The Tax 1avored -tatus of 0!plo*ee 2ene3ts 4 0n5o* it'hile it lasts"0!plo*ers bean providin health insurance to e!plo*ees in the 6789s" The

practice reall* too& o in the 67:9s durin World War .." .n 67;:% an .


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li&el* eli!inate *our 1-A to avoid the Cadillac Tax shiftin that 8%;99 bac& into*our taxable inco!e"

The association co!!unit* relies heavil* on our bene3t pac&aes" We enerall* pa*fairl*% but 'e don/t reall* co!pete for talent on salar*" We attract people that are!ission driven% 'ant 'or&life balance and appreciate a nice bene3t pac&ae" .f

those bene3ts lose their tax#favored status% 'hat does that do to our abilit* toattract and retain talent?

What/s a Glide Path?When . 'as at the World $ealth Care Conress% . heard bi e!plo*ers li&e Hisne*refer to a lide path" The*/ve pro5ected ho' the tax 'ill i!pact the! and have plansin place that 'ill allo' the! to li!bo under the tax thresholds (!ore on that later")1I=I ## . 'anted A-$A to have a lide path too and created one"

.sn/t there a proposal in Conress to eli!inate this tax?In Hece!ber 6@% President Iba!a sined the o!nibus spendin and tax extenders

bill that included a 8#*ear dela* in the i!ple!entation of the Cadillac Tax fro! 896@to 8989" .nterestinl*% there 'as not a lot of noise about the tax until the .


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In simple terms and highlighting just what's most relative to most of us in the associationcommunity, the formula looks like this.

Premium equivalent (including commissions paid to brokers) + HSA & HRA contributions +

FSA contributions + EAP !alue

The value of coverae is co!pared to thresholds set in the ACA ## 69%899 forindividual coverae and 8%;99 for self L other" An* Malue over the thresholds istaxed at :9" All e!plo*er and e!plo*ee pre#tax contributions to $-As and 1-Asare included in the calculation" $.PAA excepted 0APs 'ill probabl* be excluded"(0APs that include face#to#face visits are sub5ect to $.PAA")

The dela* in the Cadillac tax does not chane an indexin for!ula% 'hich beins in8967" -o 'hen the Cadillac tax is 3rst applied in 8989% the dollar thresholds 'illhave been increased to reBect approxi!atel* t'o *ears’ increase in inBation"

There are some proposed adjustments for covered retirees that are at least , but not yetmedicare eligible! high"risk professions like law enforcement! age and gender #if the age andgender characteristics of an employer's workforce are different from those of the nationalworkforce.$ There is presently no adjustment for geographic location and that seems like aglaring omission to me. %tate mandates impact the cost of coverage with heavily regulatedstates like &assachusetts and &aryland above the national average. This would create adouble whammy for employers in these states.

Those thresholds sound !ore li&e a Ca!r* than aCadillac"

Yep% KK percent of e!plo*ers 'ere expected to be sub5ect to the tax in 896@" .f!edical spendin increases faster than the eneral rate of inBation% a hiherpercentae of e!plo*ers 'ill be sub5ect to the Cadillac Tax in 8989 than 'ould have

been in 896@" The i!pact on the association co!!unit* is expected to be !uchreater"

.s it li&el* that the for!ula 'ill chane before the taxoes into eect?

Yes% the .


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You could drive a truc& throuh the ap in thosepro5ections" .s that the best *ou can do?We have to !a&e !an* assu!ptions about the cost of coverae and the choicesA-$A sta 'ill !a&e to esti!ate our tax liabilit*"

.n the best#case scenario% 'e included a percent trend increase in the cost ofcoverae" We also assu!ed sta continue 'ith their current $-A contributions andan averae of the current 1-A contributions" (The latter is a lous* placeholder% butit’s a start")

.n the 'orst#case scenario% 'e assu!ed a 68 percent trend increase in the cost ofcoverae% increased the caps on the 1-A b* 8 percent and the $-A b* ; percent andthen assu!ed the sta currentl* participatin all !ax out their contributions"

When the .


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We started educatin our sta to be savv* health care consu!ers in 896: and

continuin to build on our eorts" .n !ost oraniRations% healthcare is the secondlarest expenseSsecond onl* to salariesS*et !ost e!plo*ers don’t teach peopleho' to et the !ost out of their invest!ent" @> of people cannot correctl* de3nethe ter!s deductible% copa*% coinsurance and !axi!u! out#of#poc&et" -et aside alittle ti!e and !one* to !a&e sure *our sta understand and &no' ho' to use *ourbene3ts"

$o' 'ould e!plo*ers actuall* pa* the tax? The second .


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6" The entit* responsible for perfor!in the da*#to#da* functions that constitutethe ad!inistration of plan bene3ts such as receivin and processin clai!s forbene3ts% respondin to inNuiries% or providin a technolo* platfor! for bene3tsinfor!ation 'ould pa* the tax" This 'ould enerall* be the plan/s third#part*ad!inistrator (TPA) ## in our case ,=

http://www.insideworkplacewellness.com/http://www.insideworkplacewellness.com/


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not 5ust the cost of the Cadillac Tax% but also an additional a!ount to cover theadditional tax the coverae provider 'ill need to pa*"

et/s 5ust loo& at the biest portion of the for!ula above the +pre!iu! eNuivalent+'hich is the bul& of our bene3t that/s run throuh our TPA ,=


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.’! convinced . need to doso!ethin% 'here should . start?

1. Estimate your tax liability. (Ask your broker orconsultant to help.)

2. Ask ASAE to advocate on behalf of associations.

3. f you have a commission a!reement "ith your broker#chan!e to a consultin! a!reement.

$. Assess "hat you kno" about your plan desi!n and

utili%ation and compare it to benchmarks.

&.

http://www.nextlogical.com/whitepaper.phphttp://www.nextlogical.com/whitepaper.phphttp://www.nextlogical.com/whitepaper.phphttp://www.insideworkplacewellness.com/http://www.nextlogical.com/whitepaper.phphttp://www.nextlogical.com/whitepaper.phphttp://www.nextlogical.com/whitepaper.phphttp://www.insideworkplacewellness.com/


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$hat%s $orking to Hold o'n ost

1ro! =ercer’s Eational -urve* of 0!plo*er#-ponsored $ealth Plans 896;

You can’t hold do'n costs 5ust b* chec&in o the boxesO ho'ever% these ite!s are

a reBection of oraniRational culture and 'orth consideration"

Plan esign & elivery

*nrastructure

!mployee $ell,-eing a

☐ Contribution for fa!il* coverae

in pri!ar* plan is 89 of pre!iu!

☒ Ier Iptional (paid) 'ell#bein

prora!s throuh plan or vendor

☐ $ih#perf

☐ PPI in#net'or& deductible is

;99L

☒ Provide opportunit* to participate

in personalroup health challenes

☒ -urical c

☒ Ier CH$P ☐ Ier technolo*#based 'ell#bein

resources (apps% devices% 'eb#

based)

☐ In#site cl

☒ $-A sponsor !a&es a contribution

to e!plo*ees accounts

☒ Wor&site bio!etric screenin ☒ Tele!edic

☒ Moluntar* bene3ts interated 'ith

core

☒ 0ncourae ph*sical activit* at

'or& (*!% 'al&in trails% standin

des&s% etc)

☒ Malue#bas

☒ =andator* enerics or other

Documents

CESSE Handout