“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.

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