More unintended consequences from ACA

[The Captain]

From one of my tax feeds:


IRS Sets Out Additional Approaches to Excise Tax on High Cost Plans; Seeks Comments (Notice 2015-52),(Jul. 31, 2015)

The IRS has issued a notice intended to continue the process of developing regulatory guidance regarding the excise tax on high-cost employer-sponsored health coverage under Code Sec. 4980I, which applies to tax years beginning after December 31, 2017. The new notice addressed additional issues, including the identification of the taxpayers who may be liable for the excise tax, employer aggregation, the allocation of the tax among the applicable taxpayers, and the payment of the applicable tax. The notice also addresses further issues regarding the cost of applicable coverage, and seeks comments.

My employer's plan is self-insured.  If you were to do a bell curve on the employees age I would be on the younger side about 3/4's up the top of the hump.  The bulk of the workforce is over 50 with a significant % over 55.  I am 48. 

As such we have a much higher average cost per employee than the national average.  We've been waiting (and are still waiting although I have to read the above notice) to see if we will be subject to the penalty on high cost plans simply because of our demographics.

We currently qualify as a high cost plan, even though my employer has scaled premiums based on salary.  The employer still pays averages per employee/family that are greater than those identified in the ACA as high cost.

The excise tax "penalty" is 40% of amounts spent beyond a cap that is considered excess spending.  We still do not have good, clear guidance as to what these caps are, or how the amounts are to be figured.

For us this is huge.  My employer may need to increase either deductibles or employee share of the premiums to avoid this excise tax.  We are still taking a wait and see stance, but it will take at least a year or more to roll out any significant changes, and the deadline is approaching.

This article does a good job of covering the issues:

www.healthaffairs.org/healthpolicybriefs/brief.php?brief_id=99

On the edge as far as planning for this, but to be honest - I'm glad it's not my baby to prepare for.

[mroped]

I'm not much of a finance person, I might have some minimal understanding of it.

To me, what would make sense, would be that the federal government should establish first what is an apropriate amount to be spent on health care annually on an individual. State, COL, should not matter. I'm talking about a national average.
If an employer decides to fully cover his employees that's all good and dandy but said employer should write off as "business expense" only what is established by the fed X no of employees. The rest of it, whatever it exceeds that limit, should be taxable at the rates established by the tax codes. 

Maybe be already is that way?!

[The Captain]

Jul 31, 2015 14:26:29 GMT -5 mroped said:

I'm not much of a finance person, I might have some minimal understanding of it.

To me, what would make sense, would be that the federal government should establish first what is an apropriate amount to be spent on health care annually on an individual. State, COL, should not matter. I'm talking about a national average.
If an employer decides to fully cover his employees that's all good and dandy but said employer should write off as "business expense" only what is established by the fed X no of employees. The rest of it, whatever it succeeds that limit, should be taxable at the rates established by the tax codes. 

Maybe be already is that way?!

Mroped - self insured means the employer pays all of the costs, as opposed to actually buying insurance.  I'm not sure if you know how that works.

So under your example, if the government decided it would be appropriate to only spend 11K per individual per year (which is about what the ACA states) and you have a cancer occurrence, then anything the employer paid for that cancer treatment over 11k would not be deductible and would be subject to an additional 40% penalty under what you propose.

Is that what you want?

Same goes for any other medical event, pregnancy etc. (we have a gestational diabeties case on my floor right now, had two cancer deaths last year).  Should the employer be heavily penalized for providing decent coverage? Or do you suggest employers older (higher cost) employees and only higher younger ones to keep their insurance pools balanced if this is done in the aggregate?

So the non working person on Medicaid/Medicare doesn't have to worry about co-pays, premiums going through the roof but the person who has a job with benefits has to pay through the nose based on company demographics?

Really?

[The Captain]

Jul 31, 2015 14:31:03 GMT -5 @sroo4 said:

Oh dear... I think if I added this topic to my brain right now I really would explode.   


(although ranting about it may take my mind off of my other issues that I'm dealing with at work...)  

Sroo - if you have any insight I'd appreciate it.  All I get is what comes through my tax feeds and I've been asked to advise when I'm pretty sure my knowledge is less than complete.

My big thing right now is figuring how this penalty will work.

[mroped]

I didn't even know that is acceptable for an employer to "self insure". I always thought that the term means that anybody has to go thru an insurance company.
In a case such as that, I see the expenses being written off. But isn't there a special fund from which they are writing the expenses? A fund where they contribute on regular basis?

[973beachbum]

Jul 31, 2015 19:04:55 GMT -5 @southernsusana said:

Jul 31, 2015 14:44:59 GMT -5 The Captain said:

Mroped - self insured means the employer pays all of the costs, as opposed to actually buying insurance.  I'm not sure if you know how that works.

So under your example, if the government decided it would be appropriate to only spend 11K per individual per year (which is about what the ACA states) and you have a cancer occurrence, then anything the employer paid for that cancer treatment over 11k would not be deductible and would be subject to an additional 40% penalty under what you propose.

Is that what you want?

Same goes for any other medical event, pregnancy etc. (we have a gestational diabeties case on my floor right now, had two cancer deaths last year).  Should the employer be heavily penalized for providing decent coverage? Or do you suggest employers older (higher cost) employees and only higher younger ones to keep their insurance pools balanced if this is done in the aggregate?

So the non working person on Medicaid/Medicare doesn't have to worry about co-pays, premiums going through the roof but the person who has a job with benefits has to pay through the nose based on company demographics?

Really?

I think you are wrong about what it means to be self-insured.  I have been in two self-insured programs.  The ex worked for a mega-large corporation that self-insured, and the State of Alabama runs a self-insurance program for education employees.

In both cases, there is a servicer for claims.  Mine happened to be BCBS for both.

What MrOped is suggesting is that the ACA determine how much is a reasonable cost for employers to pay to provide insurance.  That ties into the number that is now on W2 for tax purposes.  There is a number on mine with self-insurance, and I imagine there is one on yours as well.  If that number exceeds whatever ACA has determined, then there are taxes.  If it is less, there aren't.

This has NOTHING to do with what would be spent on an individual for a cancer event.  It has to do with the imputed premium for the insurance provided in the case of self-insurance.  In your example, $11,000 is the cost of the premium, not the cost of the payment for services.

HTH

I agree with most of this but it is important to point out that the smaller the group the greater chance for a "sick group" to skew the numbers greatly.  The state of Alabama probably has close to 100,000 people under it's state insurance including dependants.

A much smaller group, say under 5,000, is much more likely to be hit by the small group of people who are heavy users.  Add in the average age of the enrolled person is over 50 and it very well could average out to $30K or more a year in payments.

[wvugurl26]

Jul 31, 2015 18:10:31 GMT -5 mroped said:

I didn't even know that is acceptable for an employer to "self insure". I always thought that the term means that anybody has to go thru an insurance company.
In a case such as that, I see the expenses being written off. But isn't there a special fund from which they are writing the expenses? A fund where they contribute on regular basis?

They get one of the insurance companies to design the plan, negotiate with providers and administer it. Insurance company pays bills and employer reimburses them. Perfectly acceptable. My aunt's employer is self insured. I'm not sure where they pull the money from. I'd have to ask. She would know. I'm sure there is a set amount every year when they do budget put aside for it.

[cronewitch]

Our company wasn't huge but for workers comp we had about 100 doing dangerous work. We paid a per hour amount for all hours even vacation hours that was huge. At the end of the year we got a bill for any over usage. We paid the medical insurance for office staff but very good plan, very expensive and the company paid 100% so for a family it was over 1,600 a month. I am sure with ACA they will need to cut the insurance or force the employee to pay part of the premium or pay a penalty. Seems wrong to penalize a company for providing good insurance and the average age of employees was well over 50 some over 70. They were just trying to keep good employees by taking care of them.

[justme]

I never got this part of the law. Bitch about how shitty it is that employers don't care about employees to offer health insurance and how everyone needs it then penalize those that offer really good plans. It's the same as if they levied extra taxes on that company for paying everyone 70k+ for being too good to his employees.

The law needed one line. If executives have different insurance coverage then the low guy on the totem pole then it's taxed at that rate. If everyone gets the same insurance coverage than yay you're an awesome employer.

[The Captain]

From one of my tax feeds today:

» Friday's Reuters Tax Digest
AS OBAMACARE'S CADILLAC TAX LOOMS, EMPLOYERS RAISE DEDUCTIBLES-FORBES
Good morning and welcome to the top tax and accounting headlines from the U.S. and around the world.
As Obamacare's Cadillac Tax looms, employers raise deductibles, shift costs. Bruce Japsen - Forbes. Though employers won't have to pay the "Cadillac tax" on rich medical plans until 2018, they are mitigating potential financial hits from it by spending more on wellness and shifting workers to high deductible plans so employees think twice about using expensive care, a new analysis indicates. Link to Forbes, onforb.es/1DPUEOJ

www.forbes.com/sites/brucejapsen/2015/08/12/as-obamacares-cadillac-tax-looms-employers-raise-deductibles-shift-costs/?cm_mmc=Eloqua-_-Email-_-LM_CLEAN-14%20August%20Checkpoint%20Newsstand%202015%20ART-_-0000&utm_campaign=CLEAN-14%20August%20Checkpoint%20Newsstand%202015%20ART&utm_medium=email&utm_source=Eloqua&elq=d494e5f6a9834f99b89ca6ad021b63f4&elqCampaignId=6197&elqaid=8674&elqat=1&elqTrackId=c497d6c582a5408ca8b307a2ac2ede69


Yep, I'm not surprised to see this.  What a mess.  Some employees are already paying 40% of their premium at my employer.  Can't see this helping things out.

[Wisconsin Beth]

This is why DH's employer isn't permitting DH's group to use vacation for the 4th quarter - they do ACA compliance type testing for smallish (under 1,000 employees) businesses.  They're getting clients from assorted states too. 

A different company that they were partnered with is going for the 1,000+ employee businesses. 

I'm not willing to post either company name but I'll PM it. 

[whoisjohngalt]

Oh The Captain - you KNOW you are going to get 10,000 posts saying how this has nothing to do with ACA and it was happening long before and you know - those corporations are evil and deserve it anyway

[The Captain]

Lena - I'm actually thinking of changing the title to "Intended consequences of ACA"

The more I read and understand this piece of Sh!t the more I think it was designed to ultimately force America into socialized coverage.  Of course I said that before the bill was passed and was told if I liked my insurance, I could keep...

[973beachbum]

I thought I understood what they were trying to do with this. It is to stop employers from giving compensation in the form of hugely expensive health insurance benefits so there are no taxes paid on it.  I think this might be along the lines of limiting 401K contributions of highly compensated employees, or limiting deductions for high income people on their taxes and making them use the AMT.  But like the AMT I think this is going to be much farther reaching than was ever intended. 

I also think it ends up being a discussion of what the actual definition of is is.   IE how much should a health insurance policy cost before it is a Cadillac plan vs just trying to get by in NYC or Chicago.  This can easily turn into a FAFSA type thing where it decides that a family of 4 can easily live on $35K a year for basic shelter and food type of things and anything extra is clearly choosing to live the high life.

[whoisjohngalt]

Aug 14, 2015 19:26:52 GMT -5 973beachbum said:

I thought I understood what they were trying to do with this. It is to stop employers from giving compensation in the form of hugely expensive health insurance benefits so there are no taxes paid on it.  I think this might be along the lines of limiting 401K contributions of highly compensated employees, or limiting deductions for high income people on their taxes and making them use the AMT.  But like the AMT I think this is going to be much farther reaching than was ever intended. 

I also think it ends up being a discussion of what the actual definition of is is.   IE how much should a health insurance policy cost before it is a Cadillac plan vs just trying to get by in NYC or Chicago.  This can easily turn into a FAFSA type thing where it decides that a family of 4 can easily live on $35K a year for basic shelter and food type of things and anything extra is clearly choosing to live the high life.

oh don't even start me on that one.  I got slammed around here when I complained that my husband's then-new job was doing it.  I was told to suck it up.

Except I agree with The Captain - I think it was very much intended.