The “Cadillac tax” that is part of the Patient Protection and Affordable Care Act might not cost employers nearly as much as initially estimated.
The Congressional Budget Office projects in a new report that taxes on employers’ high-premium insurance plans will generate roughly $80 billion over the next 10 years.
That figure represents a decline of almost 42 percent from the $137 billion in excise tax revenue in the CBO’s February forecast.
Starting in 2018, the IRS will impose a 40 percent excise tax on employer-sponsored health benefits totaling more than $10,200 for individual coverage and $27,500 for family coverage as part of PPACA. The 40 percent nondeductible tax is designed to discourage plans from including features that promote over- or unnecessary use of medical care, such as low or nonexistent deductibles and co-pays.
The CBO’s latest report says that it lowered the forecasted excise tax revenue figure because of new trends in employer-sponsored health benefits.
“As a result, we now expect fewer employment-based plans to be subject to the excise tax on high-premium insurance plans and, consequently, have reduced our estimate of revenues from that tax by $58 billion over the 10-year period,” the CBO’s report said.
Additionally, the CBO reduced its estimates for penalty revenue that is part of PPACA’s employer mandate.
This mandates requires that employers with at least 50 full-time workers who work 30 hours or more a week must offer qualified, affordable group health benefit plans in 2014. Employers face a $2,000-per-employee tax penalty if its health care plans are not offered to at least 95 percent of full-time employees and just one full-time employee uses a premium subsidy to buy coverage offered through a state- or federal-facilitated health insurance exchange.
According to CBO estimates, the federal government will collect approximately $140 billion from the employer mandate penalties during those 10 years. This is down from its $150 billion prediction it made in February.
The revision mostly stems from refinements in the IRS’ calculation of households’ projected marginal tax rates, resulting in a minor uptick in the number of those predicted to elect an employment-based health plan. The CBO also determined that the expected net decline in the number of lives enrolled in employer-sponsored plans significantly balanced the gains.
“That slight increase in projected employment-based coverage increases the estimated loss of government revenues from the exclusion from taxation of employers’ payments of health insurance premiums for their employees,” the CBO says.