CPA & Business Advisory Blog

Health Care Reform & High-Cost Plans

The Patient Protection Act, as amended by the House Reconciliation Act, will impose a 40 percent nonrefundable excise tax on group insurers if annual premium payments exceed an inflation adjusted $10,200 for individual coverage and $27,500 for family coverage beginning in 2018.

The Patient Protection Act, as amended by the House Reconciliation Act, also provides higher premium levels for retirees and employees in certain high-risk professions: $11,850 for individual coverage and $30,950 for family coverage. Retired individuals age 55 and older would also be eligible for the higher thresholds.

Employers will be required to disclose the value of employer-provided health insurance to employees annually on Form W-2.


Designed principally to limit so-called “Cadillac plans,” the excise tax for these high-end policies would be imposed pro rata on issuers. For self-insured plans, the plan administrator (including employers that act as plan administrators) would pay the excise tax. The Patient Protection Act, as amended by the House Reconciliation Act, delays application of the excise tax from 2013 until 2018 to give plans “time to implement and realize the cost savings of reform.” Because of this delay, however, the Reconciliation Act eliminates the three-year transition relief that had been available in the Patient Protection Act for coverage in 17 high-cost states.

An insurer would be free to pass along the excise tax to consumers in the form of higher premiums as an alternative to, or in combination with, finding cost-cutting opportunities.

Cost of living adjustments. While the House Reconciliation Act raises the base dollar premium levels for classification as Cadillac plans (the original levels had been set at $8,500 for individuals and $23,000 for families), it takes away the more generous infl ation-index in the original Patient Protection Act. The threshold amounts originally would have been indexed for infl ation using CPI-U plus one percent. The House Reconciliation Act keeps that inflation adjusted calculation for 2018 and 2019 only. Thereafter, the amounts would be adjusted only using the base CPI-U. The dollar thresholds will be increased automatically in 2018 if the Congressional Budget Offi ce is incorrect in its forecast of the premium inflation rate between 2010 and 2018. Estimates are that the new indexing will more than offset any benefits given under the higher base dollar premium levels.

The House Reconciliation Act removes completely from the Patient Protection Act the value of dental and vision plan benefi ts from determining the excise tax thresholds. The House Reconciliation Act also provides adjustments to the thresholds to account for plans that carry a higher premium cost because of the participants’ age or gender.


Dan, age 40, elects family coverage under an employer-provided fully-insured health care policy covering major medical and dental with a value of $37,000. The amount subject to the proposed excise tax would be the $9,500 above the $27,500 threshold for family coverage. Dan’s employer would report $9,500 as taxable to the insurer. The insurer calculates and pays the tax to the IRS.

SourceCCH, a Wolters Kluwer business

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