Implementing Healthcare Reform

The Patient Protection and Affordable Care Act

Provisions Impacting Self-Funded Employers and their Employees
 

REVENUE ISSUES

Excise Tax on High-Cost Plans

A tax will be placed on the cost of any employer-sponsored coverage above the yearly allowable threshold. The cost of coverage is the sum of the employer’s and employee’s share.

An excise tax of 40% will be assessed on a monthly basis for any excess benefits valued above 1/12th of the yearly allowable threshold.

The monthly tax penalty is calculated as such:

(1/12th the aggregate cost of coverage)

---------------------------------------------        x 0.4 = Monthly Penalty Amount

(1/12th the applicable allowable threshold)

 

 

Starting in 2018, threshold amounts are as following:

In years subsequent to 2018, threshold amounts will be:

Coverage providers are responsible for payment of the tax penalty.

Coverage taken into account includes all employer-sponsored health coverage, including employee after tax premiums, reimbursements from Health FSA or an HRA, contributions to an HSA or Archer MSA, and, other supplementary health coverage.

Coverage taken into account does not include:

  • Employer coverage for long-term care
  • Non-health benefits
  • Separately-provided dental or vision coverage

This tax does not apply to long-term care coverage or any coverage not excludable from gross income and for which a deduction is not allowable.

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Fees on Self-Insured and Fully-Insured Plans

Large group health plans (including self-insured) will be assessed a fee to contribute to the Patient-Centered Research Outcomes Trust Fund that will be responsible for comparative effectiveness research.

Fees on self-insured and fully-insured accident and/or health insurers providing coverage in the large group market are:

  • The plan year ending in FY2013 - $1 per covered life
  • The plan year ending in FY2014 - $2 per covered life
  • In subsequent years – the amount of the previous Fiscal Year’s fee plus the percentage increase in the projected per-capita amount of National Health Expenditures

Plans that provide benefits exempted by HIPAA are not required to pay the fee.

Fees will cease to be collected after 2019.

Effective date – Plan years that begin after 9/30/2012

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Fees on Prescription Drug Manufacturers

Manufacturers and importers of branded prescription drugs are required to pay an annual fee. The fee will be based on a ratio of their yearly sales and the total yearly sales.

Effective date – 2011

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Fees on Medical Device Manufacturers

Manufacturers and importers of medical devises are required to pay an annual fee. The fee will be an excise tax on the first sale for use of devices at a rate of 2.3 percent.

Effective date – 2013

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Fees on Health Insurance Providers

Each issuer of health insurance (excluding self-insured plans and their administrators) will be assessed a yearly non-deductible fee.

Fees on insurers based on a ratio of market share will be calculated by:

  • An insurer’s net premiums; bearing to
  • The aggregate net premiums of all health insurers

An insurer’s fee will be the ratio of their market share as a percentage of each year’s applicable amount. Yearly applicable amounts are as follows:

  • 2014 - $8 billion
  • 2015 - $11.3 billion
  • 2016 - $11.3 billion
  • 2017 - $13.9 billion
  • 2018 - $14.3 billion
  • Subsequent years – The previous year’s applicable amount increased by the preceding year’s rate of premium growth

Insurers with less than $50 million in net premiums will be assessed a reduced fee:

  • Insurers with less than $25 million in net premiums will not be assessed a fee
  • Insurers with more than $25 million in net premiums, but less than $50 million in net premiums, will only have 50% of their premiums taken into account

Effective date – 2014

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Elimination of Deduction for Part D Subsidies

Plans who maintain prescription drug plans for their Medicare Part D eligible employees will no longer be allowed to deduct Federal subsidies for doing so.

Effective date – 2013

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Modification of Itemized Deductions for Medical Expenses

The adjusted gross income threshold for claiming the itemized deduction for medical expenses is increased from 7.5% to 10%. Individuals age 65 and older would be able to claim the itemized deduction for medical expenses at 7.5% of adjusted gross income through 2016.

Effective Date – 2013

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Increase of Hospital Insurance Tax

An employee’s share of the FICA and SECA taxes are increased by 0.9% for all wages over:

  • $200,000 for individuals
  • $250,000 for families who file jointly
  • $125,000 if married, but file separately

Effective date – 2013

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Unearned Income Medicare Tax

The Medicare portion of the FICA tax will be increased for high-income workers up to 3.8% (with the worker paying the all of increased 0.9%). The Medicare tax of 3.8% will now also be applied on net investment income. Those subjected to the tax increases are:

  • Individuals with adjusted incomes over $200,000
  • Households with adjusted incomes over $250,000
  • $125,000 if married, but file separately

Taxable net investment income is income made on any of the following:

  • Interest
  • Dividends
  • Royalties
  • Rents
  • Gross income from a trade or business involving passive activities
  • A net gain from disposition of property (other than property held in a trade or business)

Effective date – 2013

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(Please note: This document was produced by the Self-Insurance Institute of America to provide an overview of the Patient Protection and Affordable Care Act, as modified by the Health Care and Education Reconciliation Act. It does not cover every aspect of the legislation, and certain provisions of the law may change or be modified by additional rules and regulations. This document does not constitute legal or tax advice.)