Beginning in 2018 your employer (including governments) insurance company or union will be subject to a 40% excise tax on high value health plans. Large employers, government plans and union plans are most likely to be subject to the allowed limits.
But ask your self, why would any plan sponsor waste money and pay this tax? And if they are subject to the tax, don’t you think the expense will be passed along to the plan participants. The fact is many employers are trimming benefits in anticipation of the tax in an effort to avoid it.
The IRS has issued initial guidance on how the tax will be applied. As you may suspect, it’s not that simple. It may not be hard to reach the allowed plan value limits either when you consider all that must be included in the calculation (applicable coverage). Just look at the first three buckets below; add them together and it’s not hard to reach an annual value of $27,000 for a family.
DEFINITION OF APPLICABLE COVERAGE
Applicable coverage includes coverage under both fully insured and self-insured employer-sponsored health plans, regardless of who pays for the coverage or whether it is paid for with pretax or after-tax dollars. The following types of coverage are considered applicable coverage:
- Employer and employee contributions to major medical coverage that is excludable from employees’ gross income
- Employer and employee contributions to health flexible spending accounts (FSAs)
- Employer contributions (including employee pretax salary reduction contributions) to health savings accounts (HSAs) and Archer medical savings accounts (MSAs)
- Health reimbursement arrangements (HRAs)
- Onsite medical clinics (except for those providing only de minimis medical care, such as free first aid to employees)
- Retiree coverage
- Multiemployer plan coverage (always treated as providing “other-than-self-only” coverage — $27,500 threshold for 2018)
- Executive physical programs
- Specified disease or illness and hospital indemnity or other fixed indemnity coverage if the cost of coverage is excluded or deducted from taxes
- Governmental plans maintained for civilian employees by federal, state or local governments
QUINNSCOMMENTARY 