Avoid Dollar Guzzling ACA “Cadillac Tax”

Employers have been pummeled with change after change in the five (5) years since enactment of the Affordable Care Act (ACA). With many of the Act’s changes now implemented or well under way, there remains one provision that has many employers feeling anxious.

 The provision creating this anxiety is the 40% excise tax on the cost of employer-sponsored coverage over a threshold amount that will take effect for tax years beginning after December 31, 2017. The thresholds to trigger the excise tax will be $10,200 for self-only coverage and $27,500 for other than self-only coverage.

 IRS Notice 2015-16 was published in late February addressing this impending tax. However, the notice asked more questions than it answered. The notice can be accessed from the Hot Issues page on the IRS website at http://www.irs.gov/Businesses/Small-Businesses-&-Self-Employed/IMRS-Hot-Issues.

 While employers didn’t get the answers they were looking for in the notice, it can serve as a reminder to employers – and their broker advisors – that now is a good time to strategize on possible actions to mitigate or avoid this impending tax.

Employers should assess the current premiums for their plans and extrapolate where their costs may be come 2018. If their plan costs will trigger the Cadillac tax, it may be time to consider alternatives. These may include:

  • Higher deductibles
  • Higher out-of-pocket expenses
  • Lower subsidies for spouses or dependents
  • Limiting contributions to HSAs, FSAs and HRAs
  • Revisiting COBRA applicable premium calculations for self- funded plans
  • Offsetting any premium reductions on increases in payroll taxes. 

Some employers will want to “ease off the gas” by making changes in their health plans in each of the coming years. Others may be comfortable “jamming on the brakes” to avoid crashing into the excise tax in 2018. And, many will have their fingers crossed that Congress takes action and takes this tax model off the market!

Tax and Enrollment Statistics of Note

We all know about the know the Benjamin Disraeli quote about lies and statistics but, in this case, a quote from Ron DeLegge II is more appropriate. He said,   “99 percent of all statistics only tell 49 percent of the story.”

And, with the ACA, the story is an ever evolving on

www.upcounsel.com
http://www.upcounsel.com

e! That being said, I found these statistics from two very different sources to be of interest.

H&R Block issued some interesting tax facts on February 24, 2015. They reflect on how the 2015 tax season and the ACA rules are impacting taxpayers and include:

  • Average penalty for no coverage — $172
  • Average subsidy amount thatmust be paid back — $530
  • About 1/3 of exchange users gettingmore of a refund due to overestimating income — amount $365
  • A number of taxpayers are claiming an exemption with the leading reason being that the taxpayer’s income was below the filing requirement.

Details can be found at: http://newsroom.hrblock.com/hr-block-taxpayers-following-aca-rules-refunds-take-hit/.

HHS posted a “snapshot” of 2015’s Open Enrollment and Re-Enrollment. Highlights of the posting include:

  • More than half of the 4.17 million people who re-enrolled in coverage during open enrollment actively selected a plan at re-enrollment. More than one half of those selected a new plan
  • 22% of those re-enrolling were automatically re-enrolled into the same or similar plan with the same insurer
  • 53% of consumers on the marketplace are new consumers.

Details can be found at: http://www.hhs.gov/healthcare/facts/blog/2015/02/open-enrollment-2015-re-enrollment.html .

Et tu, Special Enrollment?

Brokers may have to cancel a much needed spring break due to today’s CMS announcement of a new – one time – special enrollment period that will begin March 15, 2015 and end April 30, 2015. The special enrollment will give people an opportunity to enroll in coverage so they don’t face another tax penalty next year for not having coverage this year.

In order to qualify for the exemption you must:

  • Attest that you had to pay a penalty for not having coverage in 2014
  • Not currently be enrolled in an exchange plan
  • Claim that you just found out you would have to pay a penalty for not having coverage when you filed your tax return.

There are no estimates at this time of how many people will benefit from this special enrollment. One must wonder whether previous enrollment efforts that minimized the penalties that individuals could face for not having coverage contributed to the need for this “tax avoidance” special enrollment.

Some individuals were willing to risk a $95 penalty for not having coverage. Perhaps the penalty for not having coverage in 2015 which jumps to the greater of 2% of household income or $325 per adult will stimulate action.

50 Shades of Employer Responsibility

Depending on which article or newsletter you see, the number of full-time and full-time equivalent employees that subjects an employer to the ACA’s employer responsibility requirements is either 50 or more than 50. Hmm, it can’t be both! So, this answer is correct?

Credit: Courtney Keating E+ Getty Images
Credit: Courtney Keating E+ Getty Images

The answer is 50! Here is the answer straight from the IRS:

To be subject to the Employer Shared Responsibility provisions for a calendar year, an employer must have employed during the previous calendar year at least 50 full-time employees or a combination of full-time and part-time employees that equals at least 50.

Source: http://www.irs.gov/Affordable-Care-Act/Employers/Questions-and-Answers-on-Employer-Shared-Responsibility-Provisions-Under-the-Affordable-Care-Act

First Compliance Step, Are You Big or Small?

Whenever you’re speaking with an employer about health insurance and the Affordable Care Act (ACA) , the first thing you need to establish is whether the employer is a large or small employer according to the ACA. Depending on whether an employer has 50 or more full-time equivalent employees (FTEs), the response you make to any questions may be very different.

Employers that have 50 or more FTEs are considered “applicable large employers” for ACA purposes. That’s the threshold for the Act’s employer responsibility requirements.

While you’re at it, if an employer mentions the term FTEs always ascertain their meaning in using the term. Some employers use this acronym to mean “full-time employees.” Not knowing how the term is being used, could affect the accuracy of your response.

http://www.job2fit.com/
http://www.job2fit.com/

After all, an employer with 35 full-time employees can easily have a total of 50 or more full-time and  FTEs (full-time equivalents) if they have any part-time employees.

Accountants and Other Strangers

http://www.ktpadvisors.com/
http://www.ktpadvisors.com/

We’ve been seeing a lot of media stories on tax filing and the Affordable Care Act. This is the first year when individuals will have to address whether they have coverage – or not – when they file their taxes.

This tax change, like any change, causes conflict and opportunity. The conflict will arise when people file their taxes and discover that the penalty for not having coverage may be greater than they expected.

The penalty for not having coverage for 2014 is the GREATER of 1% of your household income or $95 per adult. Many people have the mistaken impression that the penalty is only $95, regardless.

Here is an example from the IRS on how the penalty works.

Single individual with $40,000 income

Jim, an unmarried individual with no dependents, does not have minimum essential coverage for any month during 2014 and does not qualify for an exemption. For 2014, Jim’s household income is $40,000 and his filing threshold is $10,150.

  • To determine his payment using the income formula, subtract $10,150 (filing threshold) from $40,000 (2014 household income). The result is $29,850. One percent of $29,850 equals $298.50.
  • Jim’s flat dollar amount is $95.

Jim’s annual national average premium for bronze level coverage for 2014 is $2,448. Because $298.50 is greater than $95 and is less than $2,448, Jim’s shared responsibility payment for 2014 is $298.50, or $24.87 for each month he is uninsured (1/12 of $298.50 equals $24.87).

Jim will make his shared responsibility payment for the months he was uninsured when he files his 2014 income tax return, which is due in April 2015.

 For more from the IRS on the individual penalty click here: http://www.irs.gov/Affordable-Care-Act/Individuals-and-Families/ACA-Individual-Shared-Responsibility-Provision-Calculating-the-Payment.

 Imagine Jim’s surprise if he thought his penalty was only going to be $95 when it will really be $298.50! He may want to take action to avoid an even larger penalty next year when the fee is the greater of 2% of household income or $325 per adult.

 And, that’s where the opportunity comes in. Jim is likely to ask his tax preparer about obtaining coverage and what it all means.

 Wouldn’t it be a good idea for brokers to make the acquaintance of tax preparers to help with Jim’s questions?

Focus on Subsidies may Shortchange Employer Plan Benefits

It seems that everyone is focused on the availability of subsidies in the exchange plans. We get many questions about whether and how employees can qualify for a subsidy. The general answer is that if an employee has an offer of coverage from their employer and it meets the affordability and coverage requirements – they can’t waive the employer plan and qualify for a subsidy.

http://www.wkow.com/
http://www.wkow.com/

But, it’s important to remember – and remind – employees who have employer based plans available to them that an employer plan is also a subsidized plan. And, the subsidy through the employer plan – as well as the scope of coverage provided by the employer – may be of much greater value.

 Employer contributions to an employee’s coverage (and, if applicable, their family members) are tax free benefits. The subsidy, so to speak, is that the employee doesn’t pay taxes on the employer’s contribution to coverage!

 Most employers also deduct any employee contributions to premiums on a pre-tax basis. There’s another subsidy masquerading as a pre-tax contribution.

 An individual purchasing coverage in the health exchange may qualify for a subsidy to help pay premiums. But, the premiums that the individual pays are paid on an after-tax basis.

 And, I would be remiss in mentioning that employer-based coverage generally means that an employer – or the broker on the case – will assist with explaining the plan of benefits as well as help with any problems that may arise with claims.

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