There is plenty of time to worry about the “high-cost” plan excise tax, worry about the health care system now

In the quest to find revenue for the Patient Protection Affordable Care Act, Congress in its wisdom created an excise tax applied to “high-cost” employer sponsored health coverage. From reading the comments made by various experts, it appears that the assumption is that insurance companies provide overly generous benefits willy-nilly just so they can charge high premiums.  

The reality is that most “high-cost” plans that will reach the tax threshold are union plans, large employers and state governments, nearly all of which are self-insured with the benefit structure reached through collective bargaining or based on employer decisions over the years. The fact they are expensive is not only a reflection of the relative generosity, but of their work force demographics and their geographic location.  

The limits before the excise tax hits are increased for certain retiree plans and for plans where the majority of workers are individuals in a high-risk profession or employed to repair or install electrical or telecommunications lines, (I wonder which union talked to which Senator on this one).  The high-risk profession exception is curious; while it sounds good, the fact is that any injury or occupational related illness for these workers is not covered by the health benefits plan at all, but rather by workers’ compensation.  The idea that their health benefits cost more because of their profession is tenuous at best, especially considering that nearly two thirds of typical plan claims come from dependents, not employees. 

The limits, effective January 2018, are $10,200 for individuals and $27,500 per year for families ($11,850 for individual coverage and $30,950 for family coverage, for retirees over age 55 who are not Medicare-eligible and high-risk professions). 

There is some indexing for inflation. In addition, the dollar thresholds are increased in 2018 if premiums for the Blue Cross/Blue Shield standard benefit option under the Federal Employees Health Benefits Plan increase by more than 55% for the period 2010 to 2018. If you do the math, you will see that those premiums will increase by over 55% if the annual increase in costs is just 5.6%, an almost certainty given health care trends.  

While the limits do not include free standing dental and vision plans, they do include contributions to an FSA and HSA. 

So, what do we have here?  Something that goes into effect in eight years, something that is already adjusted to higher limits, exceptions for selected groups (mostly union workers) and a tax that nobody is going to pay.  Rather, the cost of these plans will be lowered or more likely, the law will be amended before 2018 so that the entire crazy idea goes away.  The logic that these limits will cause premiums to go down and individuals to be more conscientious consumers of health care is laughable.  Look what is happening in the various states as they attempt to impose even modest cost sharing and benefit changes on public employee plans.  To keep under the caps a plan will have to lower the benefit, that means raise deductibles, co-payments or trim covered services; it ain’t going to happen, but if it does, the workers suffer not the employer or insurance company.  Some employers are already planning a stragety to trim benefits well in advance of 2018.

Spend your time on something more relevant, like managing health care costs for real.

For those interested, following are excerpts from Section 9001 of the PPACA dealing with the excise tax.

 

TITLE IX—REVENUE PROVISIONS 

Subtitle A—Revenue Offset Provisions 

SEC. 9001. EXCISE TAX ON HIGH COST EMPLOYER-SPONSORED HEALTH

COVERAGE.

 (a)  IN GENERAL.—Chapter 43 of the Internal Revenue Code of 1986, as amended by section 1513, is amended by adding at the end the following: 

‘‘SEC. 4980I. EXCISE TAX ON HIGH COST EMPLOYER-SPONSORED

HEALTH COVERAGE.

 ‘‘(C) APPLICABLE DOLLAR LIMIT.— As revised by section 1401(a)(2) of HCERA. 

‘‘(i) 2018.—In the case of 2018, the dollar limit under this subparagraph is— 

‘‘(I) in the case of an employee with self-only coverage, $10,200 multiplied by the health cost adjustment percentage (determined by only taking into account self-only coverage), and

‘‘(II) in the case of an employee with coverage other than self-only coverage, $27,500 multiplied by the health cost adjustment percentage (determined by only taking into account coverage other than self-only coverage). 

‘‘(ii) HEALTH COST ADJUSTMENT PERCENTAGE.—For purposes of clause (i), the health cost adjustment percentage is equal to 100 percent plus the excess (if any) of— 

‘‘(I) the percentage by which the per employee cost for providing coverage under the Blue Cross/ Blue Shield standard benefit option under the Federal Employees Health Benefits Plan for plan year 2018 (determined by using the benefit package for such coverage in 2010) exceeds such cost for plan year 2010, over ‘‘(II) 55 percent. 

‘‘(iii) AGE AND GENDER ADJUSTMENT.—

‘‘(I) IN GENERAL.—The amount determined under subclause (I) or (II) of clause (i), whichever is applicable, for any taxable period shall be increased by the amount determined under subclause (II). 

‘‘(II) AMOUNT DETERMINED.—The amount determined under this subclause is an amount equal to the excess (if any) of— 

‘‘(aa) the premium cost of the Blue Cross/Blue Shield standard benefit option under the

Federal Employees Health Benefits Plan for the type of coverage provided such individual in such taxable period if priced for the age and gender characteristics of all employees of the individual’s employer, over ‘‘(bb) that premium cost for the provision of such coverage under such option in such taxable period if priced for the age and gender characteristics of the national workforce.

‘‘(iv) EXCEPTION FOR CERTAIN INDIVIDUALS.—In the case of an individual who is a qualified retiree or who participates in a plan sponsored by an employer the majority of whose employees covered by the plan are engaged in a high-risk profession or employed to repair or install electrical or telecommunications lines— 

As revised by section 1401(a)(2) of HCERA.‘‘(I) the dollar amount in clause (i)(I) shall be increased by $1,650, and ‘‘(II) the dollar amount in clause (i)(II) shall be increased by $3,450, osic-final punctuation incorrect.

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