By Gene Robbins, Managing Editor
Insurance brokers are giving the school district a heads-up that it’s in line for a potential hefty tax on health benefit plans a couple of years down the road.
Jason Della Penna, senior vice president for employee benefits regulatory affairs for Brown and Brown Benefit Advisors, estimated the hit to the budget could be $343,211, based on current health plan enrollments of Hillsborough school employees.
The part of the Affordable Health Act, sometimes called “Obamacare,” that imposes the so-called Cadillac tax won’t go into effect until 2018. It’s likely that benefit rates will go up — and potentially the tax amount — before that part of the law takes effect, said Mr. Della Penna.
A six-figure tax would certainly become a major budget consideration for budgeting two years from now, and a subject for collective bargaining with the 1,200 or so employees of the district.
More than 800 employees in two plans (Direct 10 and Direct 15) through the State Health Benefits Plan qualify as “high-cost” and thus would be subject to the tax.
Regulations defining the tax process have not yet been issued. The Cadillac tax will be the last part of AHA to take effect. Its stated purpose is to generate $87 billion over 10 years to help finance the expansion of health coverage, said Mr. Della Penna.
Its unstated purpose is to change behavior, he said. The intent is to end so-called “rich” plans by making them unaffordable, encouraging people to look at high-deductible-type plans. Shopping for coverage, he said, would hopefully lead to bringing down the overall cost of health care in the country.
A “Cadillac tax” applies to health insurance (major medical) and prescription drugs, but not on standalone dental and vision, worker’s compensation, accidental. The tax is based on total cost of the premium, which is paid mostly by the employer but some comes from the employee. Hillsborough schools staffers typically pay about 16-18 percent.
The tax is 40 percent of the amounts over a threshold of $10,200 for individual coverage and $27,500 for couples or families. Those numbers are for the total premium, by employer and employee. Deductions and co-payments don’t apply, but flexible spending accounts for unreimbursed expenses would.
The cost of the tax is likely to be shared with employer and employee, maybe on same percentages they pay for premiums, he said. That makes it a likely collective bargaining negotiating item with the employees’ union.
Mr. Della Penne said the employer is responsible for calculating the tax. There is the likelihood of increased costs for administration, he said, because additional employees or a consultant will likely have to be hired to process reporting requirements.
He said he was projecting the impact right now, because no regulations have come down from the Internal Revenue Service, although agency guidance memos have given hints.
From a political standpoint, both Democrats and Republicans say they want to do everything from tweak to eliminate the law, but nothing will happen with Cadillac tax until after 2016 presidential election, Mr. Della Penna predicted.
But every major component of the AHA has come to pass, he said, “so it’s important not to stick our heads in the sand.”
Board member Jennifer Haley said it sounded to her that the law is going to discourage employers from offering good benefit plans in order to avoid paying the tax.
Board member Lorraine Soisson said she thought the trend will be for insurance industry to devise and offer plans that avoid the Cadillac tax.
Mr. DellaPenna said large employers have taken steps to change benefit plans, but it could be harder to achieve with collective bargaining.
