ACA Puts Employers Between A Rock And A Hard Place

A great article by Greta Engle on the upcoming challenges with the ACA.

Original Post from on July 8, 2016

The value of employer-sponsored health care recently has come under scrutiny from lawmakers as they look for solutions to reduce the federal deficit and alternatives to the Affordable Care Act (ACA). If you’re not a political junkie like me, let me provide some context.

Historically, one of the largest subsidies for health insurance comes from employment-based coverage. That’s because the federal tax system provides preferential treatment for health care coverage that people receive from their employers. Employers’ payments for health coverage are excluded from income and payroll taxes. And, most times, employee contributions are also excluded from income and payroll taxes.

There are many benefits of employer-sponsored health care coverage that Congress and specifically House Speaker Paul Ryan, who has commissioned a Task Force on Health Care Reform, should realize. For starters, the ability to offer health benefits sets an employer apart and can be a strong driver in a retention or recruitment strategy. American workers in today’s climate have an expectation of health care as part of their compensation package (remember the good old days when you were considered to have a professional job if your employer provided health benefits?) and employer-sponsored health benefits costs are pretax deductions. Additionally, flexible spending accounts (FSAs) and health savings accounts (HSAs) provide another savings tool for employees to avoid out-of-pocket expenditures coming from a household budget. These are just a few of the benefits.

While the ACA includes some provisions that should be applauded, as they’ve increased access and coverage, there are some provisions that have had an adverse effect—especially on employers. We’re now beginning to realize the costs associated with the ACA, and, in particular, how our economy has been impacted. Some Americans are now working part time or having their hours cut by employers seeking to avoid providing coverage under the full-time mandate of a 30-hour workweek. Then there’s my favorite topic: the excise tax, or “Cadillac tax,” that was delayed until January 2020. To avoid the anticipated tax, many employers have restructured their health benefits offerings or increased workers' deductibles and co-pays.

When the excise tax goes into effect in 2020, employers will most certainly experience higher deductibles and increased out-of-pocket costs—resulting in employers dropping group health plan coverage. This tax MUST be repealed; at the very least, significant changes must be made to avoid those financial consequences to employees. Some of those changes include eliminating HSAs and FSAs from the calculation; removing the employee portion of premium contributions; and basing inflation on the national health care inflation trend rather than the Consumer Price Index, which was 1.5 percent for 2013.

Tinkering with the tax treatment of employer-sponsored health care is not a great idea, especially since more than 175 million Americans currently enjoy this benefit. Instead of targeting employer-sponsored health benefits, lawmakers should consider other financial options.

Employers and employees should be paying attention to this critical issue. The Task Force on Health Care Reform is on the fringes of recommending some tax implications that can shatter a business, threaten individuals’ financial stability and jobs across the U.S., and put employers between a rock and a hard place!

Originally posted on the SHRM Policy Action Center Blog.


Engle, G. (2016, July 8). ACA puts employers between a rock and a hard place [Web log post]. Retrieved from

IRS Begins Preparing Cadillac Tax Regulations; Public Input Requested

​Originally posted February 24, 2015 on

In Notice 2015-16, the Internal Revenue Service (IRS) outlines potential approaches for future proposed regulations regarding the excise tax on high cost employer-sponsored health coverage under section 4980I, also known as the Cadillac tax.

The notice is intended to initiate and inform the process of developing regulatory guidance regarding the excise tax on high cost employer-sponsored health coverage under section 4980I of the Internal Revenue Code. Section 4980I, which was added by the Affordable Care Act, applies to taxable years beginning after December 31, 2017.

Under this provision, if the aggregate cost of “applicable employer-sponsored coverage” provided to an employee exceeds a statutory dollar limit, which is revised annually, the excess is subject to a 40% excise tax.

The issues addressed in this notice primarily relate to:

  1. the definition of applicable coverage,
  2. the determination of the cost of applicable coverage, and
  3. the application of the annual statutory dollar limit to the cost of applicable coverage. The Department of the Treasury (Treasury) and IRS invite comments on the issues addressed in this notice and on any other issues under section 4980I.

This notice describes potential approaches on a number of issues which could be incorporated in future proposed regulations, and invites comments on these potential approaches.

Treasury and IRS intend to issue another notice before the publication of proposed regulations under section 4980I, describing and inviting comments on potential approaches to a number of issues not addressed in this notice, including procedural issues relating to the calculation and assessment of the excise tax.

After considering the comments on both notices, Treasury and IRS anticipate publishing proposed regulations under section 4980I. The proposed regulations will provide further opportunity for comment, including an opportunity to comment on the issues addressed in the preceding notices.

Health Care Reform Heightens Employers' Strategic Plans for Health Care Benefits

Original article can be found at

Original source: Towers Watson

NEW YORK--(BUSINESS WIRE)--August 21, 2013--

The breadth of health care reform is prompting changes and ushering in emerging opportunities for employers, according to a survey of 420 midsize and large companies by global professional services company Towers Watson (NYSE, NASDAQ: TW). While employers remain concerned about a predicted 5.2% increase in 2014 health care costs and the risk of triggering the excise tax* in 2018, most (82%) continue to view subsidized health care benefits as an important part of their employee value proposition in 2014.

However, the 2013 Health Care Changes Ahead Survey found that a majority of employers do anticipate making moderate to significant changes in their health benefit programs for all employees and retirees by the beginning of 2016. It also revealed a clear disparity in how employers view public and private exchanges. Nearly 30% of employers have confidence in public health insurance exchanges as a viable alternative to employer-sponsored coverage in 2015. In contrast, private exchanges are more appealing, with 58% having confidence in them as a viable alternative. In short, employers are intrigued by the potential of private exchanges to control cost increases, reduce administrative burdens and provide greater value.

Employers remain committed to sponsoring health care benefits, and nearly all (98%) plan to retain their active medical plans for 2014 and 2015. However, they will look to private exchanges as a potential delivery channel. This arrangement enables them to maintain their role as plan sponsor, but outsource certain aspects of plan management to an exchange operator. Nearly three-quarters (74%) of companies surveyed reported that as they evaluate private exchanges for active full-time employees, they will want evidence that private options deliver greater value than the current self-managed model.

"The health care landscape is changing rapidly thanks to health reform, continued cost escalation, the emergence of health benefit exchanges, and new provider contracting and care delivery arrangements," said Randall Abbott, a senior health care consultant at Towers Watson. "While employers are grappling with how to comply with health care reform right now, they are evaluating new health care designs and delivery approaches for their employee and retiree populations that will ultimately transform the look of employer-provided health plans over the next three to five years. In particular, employers recognize the impact of the excise tax requires strategic planning now to create a glide path to 2018."

Initiatives to Avoid the Excise Tax

More than 60% of employers believe that they will trigger the excise tax in 2018 if they don't make adjustments to their current benefit strategy. Nearly the same percentage also say the excise tax will have a moderate or significant influence on their strategy.

To combat the increase in employee health care costs and avoid the excise tax, nearly 40% of employers will be changing their plan designs for 2014. In addition to emphasizing employee wellness and health improvement approaches, employers are looking to increase their use of supply-side strategies and aggressive vendor management techniques. For 2015 or 2016, they are considering providing outcome-based incentives (49%), offering a benefit differential for use of high-performance networks (47%) and using value-based benefit designs (40%). Employers will also be focused on reducing coverage subsidies for spouses and dependents, as well as implementing spousal coverage exclusions or spousal premium surcharges when other health coverage is available.

"Employers are balancing many competing factors as they revisit their financial commitment to health benefits and their ability to maintain a sustainable plan in the face of annual cost increases and the excise tax. They see health care benefits as an important part of their total rewards mix. And as they weigh new options, they will be looking to keep their plans affordable and viable for the long term," said Ron Fontanetta, a senior healthcare consultant at Towers Watson. "In the next two years, many employers will evaluate their strategic options for active employees, and wait to see how exchanges evolve and the broader market responds. We are likely to see a much different -- and much faster -- pace of change in retiree medical plans."

Health Care Coverage for Retirees and Part-Time Workers

With the existence of proven exchange solutions for Medicare-eligible retirees, the percentage of employers that are somewhat or very likely to discontinue their employer-sponsored plan for post-65 retirees will grow from 25% in 2014 to 44% in 2015. And with the advent of public exchanges making new solutions available for pre-65 retirees, the percentage of employers that are somewhat or very likely to discontinue their plan for pre-65 retirees will jump from 10% in 2014 to 38% in 2015.

Less change is expected for part-time employees. Only 11% are considering changes to their total rewards mix or design for part-time employees. Many part-time employees are likely to seek coverage through public exchanges.

Other Notable Trends and Data Points from the Survey

-- CEOs and CFOs have become increasingly involved in health care strategy decisions (36% and 46%, respectively).

-- Seven in 10 employers have a stronger commitment to improving employee health because of health care reform, while 71% have a stronger commitment to work with health care providers and suppliers to improve health care delivery and quality.

-- The use of personalized digital technologies to improve employee health engagement is on the rise. Forty-three percent of companies plan to use the technologies by 2014, and another 31% are considering its use for 2015 or 2016.

-- Half the companies surveyed provided employee communications that go beyond meeting compliance standards in educating employees on the law and its implications; 36% meet minimum compliance standards, and 14% go significantly beyond compliance to prepare employees for planned and potential strategic changes.

*Excise tax: According to the Patient Protection and Affordable Care Act, the federal government will impose an excise tax of 40% on insurers of employer-sponsored health plans, including self-insured employers, with an aggregate value of more than $10,200 for individual coverage and $27,500 for family coverage.

About the Survey

The 2013 Towers Watson Health Care Changes Ahead Survey offers insight into the focus and timing of U.S. employers' planned response to the Patient Protection and Affordable Care Act and the start of open enrollment for health insurance exchanges in the fall. The survey was completed by 420 employers during July 2013 and reflects respondents' 2014 -- 2016 health care benefit decisions. The responding companies comprise a broad range of industries and business sizes, and collectively employ 8.7 million employees.

CBO lowers health reform 'Cadillac' tax, employer penalty estimates

Original article from

By Matt Dunning

The Congressional Budget Office has nearly halved the revenue it expects the federal government to collect from employers through the health care reform law's so-called “Cadillac tax.”

Excise taxes on employers' high-premium insurance plans are expected to generate about $80 billion over the next 10 years, the CBO said Tuesday in a report updating its federal budget projections for fiscal years 2013-2023.

The revised estimate is a nearly 42% decrease from the $137 billion in excise tax revenue that the CBO projected in February.

Beginning in 2018 under the Patient Protection and Affordable Care Act, the Internal Revenue Service will impose a 40% excise tax on employer-sponsored health benefits that cost more than $10,200 for individual coverage and $27,500 for family coverage.

In its report, the CBO said it reduced its estimate on excise tax revenue after examining recent cost trends in employer-sponsored health benefits.

“As a result, we now expect fewer employment-based plans to be subject to the excise tax on high-premium insurance plans and, consequently, have reduced our estimate of revenues from that tax by $58 billion over the 10-year period,” according to the agency's report.

Employer mandate

The CBO also lowered its projections for revenue collected through penalties included in the health care reform law's employer mandate. Under the law, employers with more than 50 full-time workers — defined as employees working 30 hours or more per week — will be required to offer qualified, affordable group health benefit plans to their employees beginning in 2014.

Failure to meet those requirements will result in a $2,000-per-employee tax penalty if an employer's health care plans are not offered to at least 95% of full-time employees and just one full-time employee uses a premium subsidy to purchase coverage offered through a state- or federally-facilitated health insurance exchange.

The CBO projects the federal government will collect about $140 billion from the employer mandate penalties for the 10-year period, down from the $150 billion it projected in February.

The agency said the revision is due mainly to refinements in the IRS' calculation of households' estimated marginal tax rates, which led to a slight increase in the number of the individuals predicted to be enrolled in an employment-based health plan.

However, the CBO also said the projected net decline in the number of lives enrolled in employer-sponsored plans largely offset those gains.

“That slight increase in projected employment-based coverage increases the estimated loss of government revenues from the exclusion from taxation of employers' payments of health insurance premiums for their employees,” the CBO said in the report.