Buckle Up! Complying with the Cadillac Tax
Sunday May 22, 2016 | 3:50pm – 4:40pm | 1 CPE
Kelly Neal, Assistant Finance Director, City of Edmond, OK
Kate Grangard, Chief Financial & Operating Officer, Gehring
Group
Francine Ramaglia, Assistant City Manager, City of Delray
Beach, Florida
Buckle Up! Complying with the Cadillac Tax 2016 GFOA CONFERENCE Presented by: Kate Grangard, CPA, CFO Francine Ramaglia, CPA, AICP, ICMA-­‐CM, Assistant City Manager City of Delray Beach, Florida May 22, 2016 This document is subject to copyright and may not be transmitted or reproduced without express written permission from Gehring Group.
The
Cadillac
Tax
Cadillac Tax – Sec-on 4980I 3 This document is subject to copyright and may not be transmitted or reproduced without express written permission from Gehring Group.
Cadillac Tax Considera-ons •  The ACA was passed in March 2010 with goals to: –  Expand coverage –  Comprehensive Coverage –  Increase Transparency –  Control Costs •  The Cadillac Tax is the final scheduled major provision of the ACA to be implemented. •  The Cadillac Tax is the media dubbed name for the Excise Tax on High Cost Employer Sponsored Health Coverage 4 This document is subject to copyright and may not be transmitted or reproduced without express written permission from Gehring Group.
Cadillac Tax Considera-ons •  Intent of the Cadillac Tax: –  Discourage low cost sharing to individuals so overuse is discouraged –  MiJgate the tax disadvantage of those who have no employer sponsored coverage –  MiJgate the perceived disproporJonate tax benefit for high earners 5 This document is subject to copyright and may not be transmitted or reproduced without express written permission from Gehring Group.
Cadillac Tax – Sec-on 4980I No-ce 2015-­‐16 – Internal Revenue Service No-ce 2015-­‐52 – Internal Revenue Service Excise Tax on High Cost Employer-­‐Sponsored Health Coverage Delayed Un-l: 2020 6 This document is subject to copyright and may not be transmitted or reproduced without express written permission from Gehring Group.
?
Cadillac Tax – Sec-on 4980I Ques-on 1 According to United Benefit Advisors, how did the 2014 cost of
government employer healthcare plans compare to the average
citizen’s plan?
A.  They were comparable in cost
B.  They cost 8% more
C.  They cost 14% more
D.  They cost 17.5% more
7 This document is subject to copyright and may not be transmitted or reproduced without express written permission from Gehring Group.
Cadillac Tax – Sec-on 4980I Tax Rate = 40 % of “Excess Benefit”
=
Applicable Coverage
less: Cost of Coverage Threshold
8 This document is subject to copyright and may not be transmitted or reproduced without express written permission from Gehring Group.
Cadillac Tax – Applicable Coverage APPLICABLE COVERAGE INCLUDES: Group medical coverage, eligible to be
tax free under Section106 regardless if
pre or post tax or who pays – employer
or employee.
9 This document is subject to copyright and may not be transmitted or reproduced without express written permission from Gehring Group.
Cadillac Tax – Applicable Coverage COBRA APPLICABLE PREMIUM Valuation Methods
•  Actuarial basis method •  Past cost method Once elected, required for five years. (Comments requested) 10 This document is subject to copyright and may not be transmitted or reproduced without express written permission from Gehring Group.
Cadillac Tax – Applicable Coverage ACTUARIAL BASIS METHOD COBRA APPLICABLE PREMIUM Estimate of actual plan cost
(not minimum, not maximum exposure)
Accreditation of individual:
1)  Making actuarial assumptions
2)  Determining COBRA applicable rate 11 This document is subject to copyright and may not be transmitted or reproduced without express written permission from Gehring Group.
Cadillac Tax – Applicable Coverage PAST COST METHOD COBRA APPLICABLE PREMIUM •  12 month measurement period
•  Ending not more than 13 months prior to determination
period
•  Applied consistently Proposed Costs Include: Proposed Cost Does Not Include: 1) Claims – accrual or cash 1) Reserves 2) Stop loss premium 2) Stop loss reimbursements 3) AdministraJve expenses 3) Premium subject to excise tax 4) Reasonable overhead of employer (salary, rent, supplies, uJliJes) 12 This document is subject to copyright and may not be transmitted or reproduced without express written permission from Gehring Group.
Cadillac Tax – Applicable Coverage DISAGGREGATION & AGGREGATION Defining “Similarly Situated”
•
Mandatory Disaggrega-on 1)
2)
•
By benefit health plan Self only / other than self only Permissive Aggrega-on Employee + Any = Other than Self (comments requested) •
Permissive Disaggrega-on (comments requested) 1)  CollecJve Bargaining
3) Specific Job Categories
2) Geographic LocaJon 4) Number of Individuals covered 13 This document is subject to copyright and may not be transmitted or reproduced without express written permission from Gehring Group.
Cadillac Tax – Applicable Coverage APPLICABLE COVERAGE INCLUDES: Actuarial Value of HRA
Employee and Employer FSA
Employer HSA & MSA
Employee Pre-Tax HSA
Clinics
Specified Disease - Critical Illness, Cancer
Retiree Coverage
14 This document is subject to copyright and may not be transmitted or reproduced without express written permission from Gehring Group.
Cadillac Tax – Applicable Coverage APPLICABLE COVERAGE EXCLUDES: Vision, Dental Excluded If Under Separate
Policy, Certificate, Contract Of Insurance
Employee Assistance Program (EAP)
Comment requested – if self-insured
Comment requested – EAP exclusion
15 This document is subject to copyright and may not be transmitted or reproduced without express written permission from Gehring Group.
Cadillac Tax – Applicable Coverage ?
Ques-on 2 How many exams must be passed to qualify for the Associate of
the Society of Actuaries designation?
A.  1
B.  3
C.  5
D.  7
h`p://h`ps://clas-­‐math.uncc.edu/actuarial/to-­‐be-­‐an-­‐actuary/ 16 This document is subject to copyright and may not be transmitted or reproduced without express written permission from Gehring Group.
Cadillac Tax – Applicable Dollar Limit COST OF COVERAGE THRESHOLD Self-­‐Only Other Than Self-­‐Only Standard $10,200 $27,500 Qualified ReJree (55+) or Plan Majority High Risk $11,850 $30,950 Adjusted: 2018 Health Cost Adjustment Percentage 2019 Forward -­‐ COLI Adjustment Age & Gender Adjustment 17 This document is subject to copyright and may not be transmitted or reproduced without express written permission from Gehring Group.
Cadillac Tax – Applicable Dollar Limit HIGH RISK EMPLOYEES Police, firefighters, EMS & first responders,
longshoreman, individuals in construction,
mining, agriculture, forestry and fishing
industries, linemen/telecommunications,
retirees of these professions with 20≥ years
employed in industry.
18 This document is subject to copyright and may not be transmitted or reproduced without express written permission from Gehring Group.
Cadillac Tax – Applicable Dollar Limit ?
Ques-on 3 According to United Benefit Advisors, how did the 2014 employee
contributions in government employer healthcare plans compare
to the average citizen’s employer plan?
A.  They were 20% less
B.  They were 40% less
C.  The employee contributions were comparable
D.  They were 10% more
h`p://www.realclearmarkets.com/arJcles/2015/05/12/obamacares_cadillac_tax_will_soon_hit_many_ciJes_and_states_101663.html 19 This document is subject to copyright and may not be transmitted or reproduced without express written permission from Gehring Group.
Cadillac Tax – Repor-ng & Payment TAX PAYING RESPONSIBILITY 20 If Fully Insured = Issuer (Carrier) If HSA/Archer MSA = Employer If any other applicable coverage = Plan Sponsor Employer calcula-on and repor-ng responsibility -­‐ provide to liable paying en-ty. This document is subject to copyright and may not be transmitted or reproduced without express written permission from Gehring Group.
Cadillac Tax – Case Study Florida City -­‐ 310 Employees
NAME:
TITLE:
General Employee
REED MOORE
General Employee
HEALTH COVERAGE TIER
FAMILY
Deductible: N one in-­‐
network
HEALTH PLAN OVERVIEW Coinsurance: 0%/30%
PLAN YEAR STARTS: JAN 1 PCP: $
10 OV Copay
FULLY-­‐INSURED/CIGNA Rx: 10 gen/30 pref/50 non-­‐
pref HEALTH CONT. -­‐ EMPLOYER:
$21,829.44
HEALTH CONT. -­‐ EMPLOYEE:
$4,800.00
TOTAL ANNUAL HEALTH INS.
21 $26,629.44
HRA EMPLOYER FUNDING
$1,065.00
MEDICAL FSA DEDUCTION
$300.00
CLINIC SERVICES
$600.00
AFLAC -­‐ CANCER
$637.44
APPLICABLE COVERAGE
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$29,231.88
Cadillac Tax – Case Study Monthly Calcula-on – Applicable Coverage COVERAGE JAN
FEB
MAR
APR
MAY
JUN
JUL
AUG
SEP
OCT
NOV
DEC
TOTAL
2,219.12
FI PREM 2,219.12 2,219.12 2,219.12 2,219.12 2,219.12 2,219.12 2,219.12 2,219.12 2,219.12 2,219.12 2,219.12 2,219.12 26,629.44
HRA
88.75 88.75 88.75 88.75 88.75 88.75 88.75 88.75 88.75 88.75 88.75 88.75 1,065.00
FSA
25.00 25.00 25.00 25.00 25.00 25.00 25.00 25.00 25.00 25.00 25.00 25.00 300.00
CLINIC 50.00 50.00 50.00 50.00 50.00 50.00 50.00 50.00 50.00 50.00 50.00 50.00 600.00
AFLAC 53.12 53.12 53.12 53.12 53.12 53.12 53.12 53.12 53.12 53.12 53.12 53.12 637.44
APPL COV 2,435.99 2,435.99 2,435.99 2,435.99 2,435.99 2,435.99 2,435.99 2,435.99 2,435.99 2,435.99 2,435.99 2,435.99 29,231.88
22 This document is subject to copyright and may not be transmitted or reproduced without express written permission from Gehring Group.
Calcula-ng Excess Benefit & Payment Due APPLICABLE COVERAGE
$29,231.88 2,435.99 2,435.99 2,435.99 2,435.99 2,435.99 2,435.99
Single
$10,200.00
Family
$27,500.00
2,291.67 2,291.67 2,291.67 2,291.67 2,291.67 2,291.67
$1,731.88
144.32 144.32 144.32 144.32 144.32 144.32
EXCESS BENEFIT
EXCISE TAX WHO REPORTS?
WHO PAYS?
TOTAL EXCISE TAX PAID ESTIM ADDL TAX @ 35%
TOTAL ER COST FOR EE
23 EMPLOYEE COUNT
40%
JAN
57.73
FEB
57.73
MAR
57.73
APR
57.73
MAY
57.73
JUN
57.73
EMPLOYER-­‐FORM 720
CARRIER -­‐ GROUP HEALTH 52.59 52.59 52.59 52.59 52.59 52.59
TPA -­‐ FSA
0.59 0.59 0.59 0.59 0.59 0.59
EMPLOYER -­‐ HRA
2.10 2.10 2.10 2.10 2.10 2.10
CLINIC ADMIN
1.18 1.18 1.18 1.18 1.18 1.18
AFLAC
1.26 1.26 1.26 1.26 1.26 1.26
$692.75
57.73 57.73 57.73 57.73 57.73 57.73
ALL TAXABLE ENTITIES
19.47 19.47 19.47 19.47 19.47 19.47
$926.38
77.20 77.20 77.20 77.20 77.20 77.20
310
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APPLICABLE COVERAGE
$29,231.88 2,435.99 2,435.99 2,435.99 2,435.99 2,435.99 2,435.99 29,231.88
Single
$10,200.00
Family
$27,500.00
2,291.67 2,291.67 2,291.67 2,291.67 2,291.67 2,291.67 27,500.00
$1,731.88
144.32 144.32 144.32 144.32 144.32 144.32 1,731.88
EXCESS BENEFIT
EXCISE TAX WHO REPORTS?
WHO PAYS?
TOTAL EXCISE TAX PAID ESTIM ADDL TAX @ 35%
TOTAL ER COST FOR EE
EMPLOYEE COUNT
40%
JUL
57.73
AUG
57.73
SEP
57.73
OCT
57.73
NOV
57.73
DEC
TOTAL
57.73 692.75
EMPLOYER-­‐FORM 720
CARRIER -­‐ GROUP HEALTH 52.59 52.59 52.59 52.59 52.59 52.59 631.08
TPA -­‐ FSA
0.59 0.59 0.59 0.59 0.59 0.59 7.11
EMPLOYER -­‐ HRA
2.10 2.10 2.10 2.10 2.10 2.10 25.24
CLINIC ADMIN
1.18 1.18 1.18 1.18 1.18 1.18 14.22
AFLAC
1.26 1.26 1.26 1.26 1.26 1.26 15.11
$692.75
57.73 57.73 57.73 57.73 57.73 57.73 692.75
ALL TAXABLE ENTITIES
19.47 19.47 19.47 19.47 19.47 19.47 233.63
$926.38
77.20 77.20 77.20 77.20 77.20 77.20 926.38
310
TOTAL EXPOSURE IF ALL SAME ELECTION & COVERAGE
24 This document is subject to copyright and may not be transmitted or reproduced without express written permission from Gehring Group.
310
$ 287,178.29
G
N
I
D
N
THE FU
M
U
R
D
N
CONU
Source: https://www.cbo.gov/sites/default/files/cbofiles/attachments/49973-UpdatedBudgetProjections.pdf
25 This document is subject to copyright and may not be transmitted or reproduced without express written permission from Gehring Group.
Cadillac Tax – Poli-cal Talk THE CANDIDATES PLAN Preserve & Fix It! Repeal & Replace! Universal Health Care! 26 This document is subject to copyright and may not be transmitted or reproduced without express written permission from Gehring Group.
THE PRESIDENTS LATEST PLAN •  Preserve Cadillac Tax •  Delay unJl 2020 costs $17.7 Billion •  Raise threshold in higher health care states – gold level if higher than Cadillac Tax Threshold 27 This document is subject to copyright and may not be transmitted or reproduced without express written permission from Gehring Group.
Cadillac Tax – Poli-cal Talk THE PRESIDENTS LATEST PLAN Concerns: •  Group insurance priced on experience •  Priced on Networks and Census Info 28 This document is subject to copyright and may not be transmitted or reproduced without express written permission from Gehring Group.
ENTITY TYPE & SIZE NAME:
TITLE:
HEALTH COVERAGE TIER
QUICK HEALTH PLAN OVERVIEW
FLORIDA CITY PBLIC S AFETY ENTITY 310 EMPLOYEES
3600 EMPLOYEES
REED MOORE
HOWIE DUNE
General Employee
Public Safety Employee
FAMILY
FAMILY
FLORIDA CITY FLORIDA CITY 440 EMPLOYEES
800 EMPLOYEES
APRIL SHOWERS
SUMMER VACATION
General Employee
General Employee
FAMILY
FAMILY
P LAN YEAR S TARTS: P LAN YEAR S TARTS: PLAN YEAR S TARTS: PLAN Y EAR S
TARTS: JANUARY 1 JANUARY 1 APRIL 1 JULY 1 FULLY-­‐INSURED/CIGNA FULLY-­‐INSURED/CIGNA FULLY-­‐INSURED/CIGNA SELF-­‐INSURED / CIGNA Deductible: N one in-­‐network
Coinsurance: 0%/30%
PCP: $10 OV Copay
Rx: 10 gen/30 pref/50 non-­‐pref Deductible: N one in-­‐network
Coinsurance: 0%/30%
PCP: $20 OV Copay
Rx: 10 gen/30 pref/60 non-­‐pref Deductible: N one in-­‐network
Coinsurance: 20%/40%
PCP: $25 OV Copay
Rx: 15 gen/30 pref/60 non-­‐pref Deductible: $1500/$3000
Coins: 10%/40%
PCP Visit: 10% after Ded.
Rx: 30% gen/40% pref/50% non-­‐
pref, after annual ded.
HEALTH CONT. -­‐ EMPLOYER:
HEALTH CONT. -­‐ EMPLOYEE:
TOTAL ANNUAL HEALTH INS.
HRA EMPLOYER FUNDING
MEDICAL FSA DEDUCTION
CLINIC SERVICES
AFLAC -­‐ CANCER
$21,829.44
$4,800.00
$26,629.44
$1,065.00
$300.00
$600.00
$637.44
$26,716.92
$11,386.50
$8,433.60
APPLICABLE COVERAGE
$29,231.88
Threshold
Single
Family
EXCESS BENEFIT
EXCISE TAX REPOTED ON:
CARRIER -­‐ GROUP HEALTH
TPA -­‐ FSA
EMPLOYER -­‐ HRA
CLINIC ADMIN
AFLAC
TOTAL EXCISE TAX PAID ESTIM ADDL TAX @ 35%
TOTAL ER COST FOR EE
EMPLOYEE COUNT
29 $2,919.96
$17,627.94
$12,890.15
$29,636.88
$29,014.44
$21,323.75
$0.00
$0.00
$1,000.00
$1,800.00
$1,700.00
$0.00
$1,500.00
$0.00
$1,296.00
$880.00
General Employee
$10,200.00
$27,500.00
$1,731.88
40%
EMPLOYER-­‐FORM 720
$631.08
$7.11
$25.24
$14.22
$15.11
$692.75
233.63
$33,816.88
Public Safety Employee
$11,850.00
$30,950.00
$2,866.88
40%
EMPLOYER-­‐FORM 720
$1,005.01
$5.09
$0.00
$4.24
$2.49
$1,146.75
$401.36
$748.66
$31,463.10
General Employee
$10,200.00
$27,500.00
$4,300.22
40%
EMPLOYER-­‐FORM 720
$1,569.40
$91.95
$0.00
$0.00
$58.73
$1,720.09
$602.03
$23,619.75
General Employee
$10,200.00
$27,500.00
$0.00
40%
EMPLOYER-­‐FORM 720
0
0
0
0
0
$0.00
$0.00
$926.38
310
$1,548.11
3600
$2,322.12
440
$0.00
800
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Cadillac Tax – Poli-cal Talk THE REPUBLICAN PLAN 4 Person Task Force seeking ACA AlternaJve for ConvenJon on July 18 OpJons include: •  PaJent CARE Act – 2/15 •  Bill by House Budget Commi`ee Chairman Rep Price •  Bill by Republican Study Commi`ee – Rep Flores •  Taxing Benefits & Give Credit •  Taxing a Percent of Benefits/Giving a Cap 30 This document is subject to copyright and may not be transmitted or reproduced without express written permission from Gehring Group.
Cadillac Tax Considera-ons •  Poten-al Effects of the Cadillac Tax: –  Costly treatment for chronic and sickly who need coverage most –  Inability to structure plans to best treat needs of the populaJon –  Employee absenteeism and producJvity may decrease –  InequiJes in penalty assessments to employers 31 This document is subject to copyright and may not be transmitted or reproduced without express written permission from Gehring Group.
Cadillac Tax Considera-ons •  Poten-al Effects of Current Proposed IRS Guidance: –  Complex and Jme consuming calculaJon –  PotenJal discriminaJon against hiring older and chronically ill employees –  Discourages consumerism (Consumer Driven Health) –  Inequity in higher allowance for mulJemployer plans –  Creates potenJal burden for public sector enJJes by encouraging carve out of public safety personnel 32 This document is subject to copyright and may not be transmitted or reproduced without express written permission from Gehring Group.
Cadillac Tax – Sec-on 4980I Ques-ons See Kate at BenTek Booth in Exhibit area: •  Cadillac Tax •  PCORI Form 720 •  TransiJonal Reinsurance Fee •  ESRP & Measurement •  Form 1094/1095 ReporJng & Resources kate.grangard@gehringgroup.com cindy.thompson@gehringgroup.com Gehring Group 561-­‐626-­‐6797 33 This document is subject to copyright and may not be transmitted or reproduced without express written permission from Gehring Group.