Health Care Reform Cadillac Tax

What You Need to Know Now About: The Cadillac Tax

Another component of the Patient Protection and Affordable Care Act (PPACA) commonly referred to as the Health Care Reform Act is a tax on benefit-rich or “gold-plated” insurance plans. This tax is often referred to as “The Cadillac Tax” and, although it is not scheduled to go into effect until 2018 and may see several revisions in design before then, some plan sponsors are beginning to develop strategies to address it.

1.  I sponsor a grandfathered health plan. Am I subject to The Cadillac Tax?

Yes. The Cadillac Tax is applicable to both grandfathered and non-grandfathered health plans. 

2.  Are there any exceptions for certain groups of employees such as collectively bargained union groups?

During initial debate about implementing The Cadillac Tax for 2013, there was debate about excluding federal employees and union groups from the provision; however that was abandoned when the implementation of the tax was delayed to 2018. At this time, union groups will also be subject to the tax in 2018.

There are some adjustments to the current 2018 Annual Value Amounts for certain groups. For example, insurance plans that have an above average population of older workers or female workers may have higher 2018 Annual Value Amounts based on a still to be determined formula. The reasoning is that the higher cost to insure these groups is due to risk factors and not to benefit-rich plan designs.

This line of reasoning is also responsible for higher 2018 Annual Value Amounts for retirees and workers in high-risk professions (firefighters, coal miners, etc.). The amounts for these professions are set at $11,850 for an individual and $30,950 for a family plan. 

3.  How many plan sponsors might be subject to The Cadillac Tax?

Initially, when the tax was scheduled to go into effect in 2013 the CBO estimated that by 2016 19% of all workers would be subject to The Cadillac Tax.

With the delayed implementation date of 2018, several studies and estimates have been performed and assuming just an average annual trend of 8%, the projection is in the range of 40%-60% of all plan sponsors will trigger The Cadillac Tax. Of course, all these projections assume the plan sponsor does not make any significant plan design changes like increased deductibles and other employee out-of-pocket costs and that the details of The Cadillac Tax as currently constituted for 2018 remain unchanged.

4.  Who will determine whether the insurance plan is subject to The Cadillac Tax and how will they do it?
The expectation is that the IRS will be responsible for determining who is subject to the tax and that they will use the amount reported on the employees’ annual W-2 form.

As noted in a previously released Health Care Reform Update on W-2 Reporting (10/14/2010), employers will need to disclose the cost of employer provided health insurance on the employee’s 2012 W-2 form. One of the reasons for including the cost of employer provided health insurance was simply to communicate the cost of the coverage to the employee. It is assumed that another reason for this W-2 requirement is to provide the IRS with the information needed in order to determine what plan sponsors are subject to The Cadillac Tax.

Once again, more guidance is needed on the matter. For the W-2 reporting, in addition to reporting the costs for the medical coverage and drug coverage, the employer must also report the cost for other employer-sponsored health care services such as executive physicals, employee assistance programs, Medicare supplemental policies, etc. If these additional health care services are reported in a lump sum format with the medical and drug coverage than the annual value amount may be overstated for purposes of calculating The Cadillac Tax. 

5.  What are the chances that The Cadillac Tax will be repealed or revised before 2018?

Repeal is unlikely.  

Revision is a possibility. The initial proposed implementation of the tax was for 2013 but then delayed to 2018. Union groups wanted to be exempt from the tax when it was proposed for 2013. Those same groups will, most likely, want to be exempt from the tax in 2018. There are also so many other variables between now and 2018 that could dramatically change the design of the tax. It is not unrealistic to expect that the current amounts of $10,200 and $27,500 or the amount of the excise tax could be changed several times before 2018.

6.  What do I need to do now?

• First, determine if The Cadillac Tax in 2018, as currently designed, will affect you. Start by taking your 2010 annual fully-insured or self-funded rates and assume an annual average trend at 9%. At that percentage, your 2010 annual rates will be double the amount by 2018. Are you above the 2018 Annual Value Amounts of $10,200 for an individual and $27,500 for a family plan?
• If it appears that your plan will be subject to the tax in 2018 and you wish to avoid paying the tax, develop a strategy. Many plan sponsors are already implementing new strategies to address the 2018 tax either by encouraging healthier behaviors now in an attempt to reduce annual average trend rates, or, by increasing employee cost sharing on a more gradual basis leading up to 2018.
• As always, our recommendation is to always do what is in the best interest of the plan. For some plan sponsors, the best course of action may be to continue offering a benefit-rich plan design and pay The Cadillac Tax. The important thing is to know the options available to you.

 If you have any questions on this or any new health care reform regulation, please contact a member of your Banyan Consulting team.

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Under the Affordable Care Act, you and your family may be eligible for some important preventive services —which can help you avoid illness and improve your health—at no additional cost to you.

What This Means for You:

If your plan is subject to these new requirements, you would not have to pay a copayment, co-insurance, or any deductible to receive preventive health services, such as recommended screenings, vaccinations, and counseling.

For example, depending on your age, you may have free access to such preventive services as:

• Blood pressure, diabetes, and cholesterol tests;
• Many cancer screenings, including mammograms and colonoscopies;
• Counseling from your health care provider on such topics as quitting smoking, losing weight, eating healthfully, treating depression, and reducing alcohol use;
• Routine vaccinations against diseases such as measles, polio, or meningitis;
• Flu and pneumonia shots;
• Counseling, screening, and vaccines to ensure healthy pregnancies;
• Regular well-baby and well-child visits, from birth to age 21.

Some Important Details:

• This preventive services provision applies to people enrolled in job-related health plans or individual health insurance policies created after March 23, 2010. If you are in such a health plan, this provision will affect you as soon as your plan begins its first new “plan year” or “policy year” on or after September 23, 2010.
• If your plan is “grandfathered,” these benefits may not be available to you.
• If your health plan uses a network of providers, be aware that health plans are only required to provide these preventive services through an in-network provider. Your health plan may allow you to receive these services from an out-of-network provider, but may charge you a fee.
• Your doctor may provide a preventive service, such as a cholesterol screening test, as part of an office visit. Be aware that your plan can require you to pay some costs of the office visit, if the preventive service is not the primary purpose of the visit, or if your doctor bills you for the preventive services separately from the office visit.
• If you have questions about whether these new provisions apply to your plan, contact your insurer or plan administrator.  If you still have questions, contact your State insurance department.
• To know which covered preventive services are right for you—based on your age, gender, and health status—ask your health care provider. 

Read a list of covered services.

Learn more background on the new prevention rules.

To read more valuable information on preventive care, click here to read and article provided by Banyan Consulting, LLC. 

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The following information is from the United States Department of Labor’s web site. Since this COBRA article (or booklet, as the article refers to it) from dol.gov has an abundance of information, we will break the article up into sections over the next several weeks. We hope that you find the information valuable.

An Employee’s Guide to Health Benefits Under COBRA – The Consolidated Omnibus Budget Reconciliation Act

Note: This publication contains information about the COBRA premium reduction provisions of the American Recovery and Reinvestment Act of 2009 (ARRA). This publication has not been updated for recent amendments made to ARRA. For updated information on ARRA and its amendments, please see the COBRA Premium Reduction Fact Sheet.

Your COBRA Rights and Responsibilities:
Notice and Election Procedures

Under COBRA, group health plans must provide covered employees and their families with certain notices explaining their COBRA rights. They must also have rules for how COBRA continuation coverage is offered, how qualified beneficiaries may elect continuation coverage, and when it can be terminated.

Notice Procedures

Summary Plan Description

The COBRA rights provided under the plan must be described in the plan’s summary plan description (SPD). The SPD is a written document that gives important information about the plan, including what benefits are available under the plan, the rights of participants and beneficiaries under the plan, and how the plan works. ERISA requires group health plans to give you an SPD within 90 days after you first become a participant in a plan (or within 120 days after the plan is first subject to the reporting and disclosure provisions of ERISA). In addition, if there are material changes to the plan, the plan must give you a summary of material modifications (SMM) not later than 210 days after the end of the plan year in which the changes become effective; if the change is a material reduction in covered services or benefits, the SMM must be furnished not later than 60 days after the reduction is adopted. A participant or beneficiary covered under the plan may request a copy of the SPD and any SMMs (as well as any other plan documents), which must be provided within 30 days of a written request.

COBRA General Notice

Group health plans must give each employee and each spouse who becomes covered under the plan a general notice describing COBRA rights. The general notice must be provided within the first 90 days of coverage. Group health plans can satisfy this requirement by giving you the plan’s SPD within this time period, as long as it contains the general notice information. The general notice should contain the information that you need to know in order to protect your COBRA rights when you first become covered under the plan, including the name of the plan and someone you can contact for more information, a general description of the continuation coverage provided under the plan, and an explanation of any notices you must give the plan to protect your COBRA rights.

COBRA Qualifying Event Notices

Before a group health plan must offer continuation coverage, a qualifying event must occur, and the group health plan must be notified of the qualifying event. Who must give notice of the qualifying event depends on the type of qualifying event.

The employer must notify the plan if the qualifying event is:

• Termination or reduction in hours of employment of the covered employee;
• Death of the covered employee;
• Covered employee’s becoming entitled to Medicare; or
• Bankruptcy of the employer.

The employer has 30 days after the event occurs to provide notice to the plan.

You (the covered employee or one of the qualified beneficiaries) must notify the plan if the qualifying event is:

• Divorce;
• Legal separation; or
• A child’s loss of dependent status under the plan.

You should understand your plan’s rules for how to provide notice if one of these qualifying events occurs. The plan must have procedures for how to give notice of the qualifying event, and the procedures should be described in both the general notice and the plan’s SPD. The plan can set a time limit for providing this notice, but the time limit cannot be shorter than 60 days, starting from the latest of: (1) the date on which the qualifying event occurs; (2) the date on which you lose (or would lose) coverage under the plan as a result of the qualifying event; or (3) the date on which you are informed, through the furnishing of either the SPD or the COBRA general notice, of the responsibility to notify the plan and the procedures for doing so.

If your plan does not have reasonable procedures for how to give notice of a qualifying event, you can give notice by contacting the person or unit that handles your employer’s employee benefits matters. If your plan is a multiemployer plan, notice can also be given to the joint board of trustees, and, if the plan is administered by an insurance company (or the benefits are provided through insurance), notice can be given to the insurance company.

COBRA Election Notice

When the plan receives a notice of a qualifying event, the plan must give the qualified beneficiaries an election notice, which describes their rights to continuation coverage and how to make an election. The notice must be provided to the qualified beneficiaries within 14 days after the plan administrator receives the notice of a qualifying event. The election notice should contain all of the information you will need to understand continuation coverage and make an informed decision whether or not to elect continuation coverage. It should also give you the name of the plan’s COBRA administrator and tell you how to get more information.

COBRA Notice of Unavailability of Continuation Coverage

Group health plans may sometimes deny a request for continuation coverage or for an extension of continuation coverage. If you or any member of your family requests continuation coverage and the plan determines that you or your family member is not entitled to the requested continuation coverage for any reason, the plan must give the person who requested it a notice of unavailability of continuation coverage. The notice must be provided within 14 days after the request is received, and the notice must explain the reason for denying the request.

COBRA Notice of Early Termination of Continuation Coverage

Continuation coverage must generally be made available for a maximum period (18, 29, or 36 months). The group health plan may terminate continuation coverage earlier, however, for any number of specific reasons. (See “Duration of Continuation Coverage” later in this booklet). When a group health plan decides to terminate continuation coverage early for any of these reasons, the plan must give the qualified beneficiary a notice of early termination. The notice must be given as soon as practicable after the decision is made, and it must describe the date coverage will terminate, the reason for termination, and any rights the qualified beneficiary may have under the plan or applicable law to elect alternative group or individual coverage, such as a right to convert to an individual policy.

Special Rules for Multiemployer Plans

Multiemployer plans are allowed to adopt some special rules for COBRA notices. First, a multiemployer plan may adopt its own uniform time limits for the qualifying event notice or the election notice. A multiemployer plan also may choose not to require employers to provide qualifying event notices, and instead to have the plan administrator determine when a qualifying event has occurred. Any special multiemployer plan rules must be set out in the plan’s documents (and SPD).

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The following information is from the United States Department of Labor’s web site. Since this COBRA article (or booklet, as the article refers to it) from dol.gov has an abundance of information, we will break the article up into sections over the next several weeks. We hope that you find the information valuable.

An Employee’s Guide to Health Benefits Under COBRA – The Consolidated Omnibus Budget Reconciliation Act

Note: This publication contains information about the COBRA premium reduction provisions of the American Recovery and Reinvestment Act of 2009 (ARRA). This publication has not been updated for recent amendments made to ARRA. For updated information on ARRA and its amendments, please see the COBRA Premium Reduction Fact Sheet.

Who Is Entitled to Continuation Coverage?

There are three basic requirements that must be met in order for you to be entitled to elect COBRA continuation coverage:

• Your group health plan must be covered by COBRA;
• A qualifying event must occur; and
• You must be a qualified beneficiary for that event.

Plan Coverage

COBRA covers group health plans sponsored by an employer (private-sector or state/local government) that employed at least 20 employees on more than 50 percent of its typical business days in the previous calendar year. Both full- and part-time employees are counted to determine whether a plan is subject to COBRA. Each part-time employee counts as a fraction of a full-time employee, with the fraction equal to the number of hours that the part-time employee worked divided by the hours an employee must work to be considered full time.

Qualifying Events

“Qualifying events” are events that cause an individual to lose his or her group health coverage. The type of qualifying event determines who the qualified beneficiaries are for that event and the period of time that a plan must offer continuation coverage. COBRA establishes only the minimum requirements for continuation coverage. A plan may always choose to provide longer periods of continuation coverage.

The following are qualifying events for a covered employee if they cause the covered employee to lose coverage:

• Termination of the employee’s employment for any reason other than “gross misconduct”; or
• Reduction in the number of hours of employment.

The following are qualifying events for the spouse and dependent child of a covered employee if they cause the spouse or dependent child to lose coverage:

• Termination of the covered employee’s employment for any reason other than “gross misconduct”;
• Reduction in the hours worked by the covered employee;
• Covered employee becomes entitled to Medicare;
• Divorce or legal separation of the spouse from the covered employee; or
• Death of the covered employee.

In addition to the above, the following is a qualifying event for a dependent child of a covered employee if it causes the child to lose coverage:

• Loss of “dependent child” status under the plan rules.

Qualified Beneficiaries

A qualified beneficiary is an individual who was covered by a group health plan on the day before a qualifying event occurred that caused him or her to lose coverage. Only certain individuals can become qualified beneficiaries due to a qualifying event, and the type of qualifying event determines who can become a qualified beneficiary when it happens. (See “Qualifying Events” earlier in this booklet.) A qualified beneficiary must be a covered employee, the employee’s spouse or former spouse, or the employee’s dependent child. In certain cases involving the bankruptcy of the employer sponsoring the plan, a retired employee, the retired employee’s spouse (or former spouse), and the retired employee’s dependent children may be qualified beneficiaries. In addition, any child born to or placed for adoption with a covered employee during a period of continuation coverage is automatically considered a qualified beneficiary. Agents, independent contractors, and directors who participate in the group health plan may also be qualified beneficiaries.

• Additional Web Features on CPAProtectPlus.com
• Brainshark Multimedia Online Presentation
• Detailed Administrative Guide Released
• Annual Enrollment Communications

The Trust is committed to continually improving the ProtectPlus member experience and the quality of the CalCPA ProtectPlus programs. The administrator transition will allow ProtectPlus program members to take advantage of a host of new and enhanced services, including:

• Simplified enrollment processes
• Improved program invoice design
• Enhanced communication capabilities – new web features; dynamic, multi-media presentations
• Streamlined administration leveraging web-based technology
• Online HR and Benefits reference materials

ProtectPlus Members
Your Annual Enrollment materials will be mailed to you on November 2, 2009 and will include new plan contact information.

These requirements impose an obligation on primary payers to identify claimants entitled to Medicare and to report those claims to Medicare electronically.

As of July 1, 2009. Health plans are required to report specific member eligibility data for members who meet certain age or disability criteria. The reporting rules apply to covered individuals age 45 and older for groups with 20 or more full or part-time active employees.

In order to comply with MMSEA, The Group Insurance Trust, Anthem Blue Cross and Seabury & Smith will work together to obtain the necessary data from members, employees and dependents. Insureds will receive letters and if necessary, follow-up phone calls to obtain the required information. Please be aware that this a mandatory Federal reporting requirement.

Failure to comply may subject Anthem Blue Cross, The Group Insurance Trust and potentially the covered group to a civil penalty of $1,000 per day for each day of noncompliance for each individual for which the information should have been submitted.

FAQ will be published Wednesday, please check back then for further information.

1. Provide a written request including; the employee’s name, the plan(s) from which the employee should be terminated, the reason why, and the effective date.
2. Sign, date and include your title.
3. Fax your written request to Seabury & Smith @ 800-682-8787

The new CalCOBRA legislation, California Assembly Bill 23, is expected to be signed by the Governor by the end of this week. This bill will align the current CalCOBRA legislation with the Federal Subsidy as defined by ARRA (American Recovery and Reinvestment Act). The following are high-level details you should be aware of:

• This bill states that health plans and health insurers have 14 days from the date of enactment to provide proper notification to those individuals who may qualify for the Cal-COBRA subsidy. The Department of Labor (“DOL”) has agreed that the timeliness within which the state mini-COBRA programs must comply is to be determined by the states themselves. The DOL held a call with the California Department of Insurance (“CDI”) and the Department of Managed Health Care (“DMHC”) to assure this is understood by all three regulators.
• The mailing will go out to all individuals who had a qualifying event between Sept. 1, 2008, to the present, regardless of whether or not they had already elected CalCOBRA.
• The bill (AB23) currently states that California residents who were involuntarily terminated from their jobs between Sept. 1, 2008, and the present will qualify for the Cal-COBRA special election period.
• There is a notice letter being developed by Anthem in conjunction with the California Association of Health Plans (“CAHP”) and other health plans in this state. Once finalized, this notice will be deemed approved by both the CDI and DMHC. Anthem will send the notice as soon as possible following the enactment of AB 23.
• Once the bill is finalized and signed into law, Anthem will share a more detailed summary of the specific provisions of this law.

To continue reading “In the Interim“