One of the biggest concerns on the horizon for employers is the impact of a new tax on expensive health insurance plans. There has been a decrease in first dollar health coverage as a result of this provision. The ACA imposes an annual 40% excise tax on plans with annual premiums exceeding $10,200 for individuals and $27,500 for families beginning in 2020.
Originally set to begin in 2018, this new tax puts many plans in jeopardy of having to calculate the amount on an annual basis and perhaps change their overall benefit design. The insurance companies will be paying an excise tax on the amount exceeding the $10,200 or $27,500 threshold and this will be passed along to consumers.
Unions and many large organizations have pushed back. Originally, the tax was not a deductible business expense, however, in late 2015 legislation was passed changing this provision to allow it to be deductible.
Items included in the tax calculation are additional benefits like flexible spending accounts, health reimbursement accounts and health savings account contributions.
- The tax is based on the total cost of each employee’s coverage above the threshold amount.
- The cost includes contributions toward the cost of coverage made by employers and employees.
- Additionally, according to the law, costs of coverage will be calculated under rules similar to the rules for calculating COBRA premium.
For more on this excise tax and appropriate employee benefit designs check out our free white paper on the advantages of self-funding post ACA which includes strategies you can employ immediately to help reduce healthcare costs.