“Cadillac Tax” on High-Cost Health Plans

Recent tax changes add an excise tax on high-cost
employer-sponsored health coverage (often referred to as “Cadillac”
health plans). This is a 40% non-deductible excise tax on insurance companies,
based on premiums that exceed certain amounts. Ouch! The tax is not on
employers themselves unless they are self-funded. However, it is expected that
employers and workers will ultimately bear this tax in the form of higher
premiums passed on by insurers. Remember, the phrase about paying the piper? The
new tax applies for tax years beginning after December 31, 2017. Gee that’s
after the current administration is out of office!

The
tax will apply when annual premium exceeds $10,200 for single coverage, and
$27,500 for family coverage. An additional threshold amount of $1,650 for
single coverage and $3,450 for family coverage will apply for retired
individuals age 55 and older and for plans that cover employees engaged in high
risk professions. The tax will apply to self-insured plans and plans sold in
the group market, but not to plans sold in the individual market (except for
coverage eligible for the deduction for self-employed individuals). The dollar
amount thresholds will be automatically increased if the inflation rate for
group medical premiums between 2010 and 2018 is higher than the Congressional
Budget Office (CBO) estimates in 2010. Huh? Employers with age and gender
demographics that result in higher premiums could value the coverage provided to
employees using the rates that would apply using a national risk pool.
Employers will be required to aggregate the coverage subject to the limit and
issue information returns for insurers indicating the amount subject to the
excise tax. Thanks to I. Jay Safier, CPA, of Rosen
Seymour Shapss Martin & Company
LLP.