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NAHU 2011: Cadillac Plan Tax May Trip Up Carriers

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SAN ANTONIO – The new Cadillac plan excise tax could force health insurers to keep close watch on insureds’ overall benefits packages.

Seth Perretta, a partner at Crowell & Moring L.L.P., Washington, talked about the slippery nature of the new tax in a breakout session here at the annual convention of the National Association of Health Underwriters, Arlington, Va.

The issue came up while Perretta was talking about the new Internal Revenue Service (IRS) Can of wormsForm W-2 reporting requirements for employer-sponsored group health coverage.

The Patient Protection and Affordable Care Act of 2010 (PPACA) is supposed to impose the Cadillac plan tax in 2018. The 40% tax will apply to health plan value over a specified threshold.

The party that pays the tax will either by the insurer that provides the plan or, in the case of a self-insured plan, the employer that sponsors the plan.

In part to start the process of implementing the tax, and in part to give policymakers more information about expenditures on group health benefits, the IRS will be asking for voluntary reports on group health expenditures for 2011 and requiring group health expenditure reports for 2012.

Employers will report the expenditures using code DD in W-2 Box 12, Perretta said.

Along with major medical premiums, costs that must be reported in the group health cost total include Medicare supplement expenditures, any dental and vision benefits costs that are bundled together with major medical costs, limited benefit health plan premiums, and, possibly, costs related to on-site health clinics, and, possibly, expenditures on counseling services or wellness services delivered through group life plans or group disability plans, Perretta said.

The total likely would not include the cost of stand-alone dental and vision benefits, but the cost of hospital indemnity plans, cancer insurance policies and critical illness policies apparently would be included if an employee paid for the benefits with pretax income, Perretta said.

Perretta noted that group health insurance providers trying to avoid having to pay the tax may not necessarily know how much employers and employees are spending on benefits such as critical illness insurance, or counseling or screening services provided through an employee assistance program bundled with a group life plan.

In some cases, employees might explose a health insurer to having to pay the Cadillac plan tax by signing up for critical illness insurance or some other ancillary benefit.

“It will be interesting as we head to 2014 to see how employers respond,” Perretta said.

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