The due date for the 2015 Employer-Provided Health Insurance Offer and Coverage reporting under the Patient Protection and Affordable Care Act (ACA) to employees and the Internal Revenue Service (IRS) has been extended.
In addition, year-end legislation provided for a two-year delay of the implementation of the 40% excise tax on high-cost health plans (also called the Cadillac tax), making it effective in 2020 rather than 2018. The measure would also make the tax deductible for employers, further reducing their cost burden.
Joe Kra, leader of the health care consulting practice of Mercer in New York City, says the extension of ACA reporting was welcomed by many employers, “but I’ve actually been surprised by how many of our clients already have a process in place to meet the prior deadline. There are a fair number, anecdotally, that are not going to use the extension.”
Kra says there are two fundamental parts to ACA reporting: getting data in order and actually producing reporting for employees and the IRS. If employers aren’t well on their way, it should be a top priority.
According to Kra, Mercer has seen that with the complexity involved, employers feel it is easier to have a third party do it. “Many of [third-party providers] are tapped out, but some may still take on new business,” he says.NEXT: Taking time to review
For the ACA reporting, plan sponsors need to track monthly data in 2015, determining who is a full-time employee, what coverage was provided to full-time employees, was it affordable and did it meet minimum value standards, Kra notes. If an employer offers a self-insured plan, it needs to identify who was actually enrolled, but for fully insured plans, the insurance provider does that.
Scott Austin, an employee benefits attorney and head of the health care reform initiative at Hunton & Williams in the Atlanta and Dallas offices, and Mike Trabold, director of compliance at Paychex in Rochester, New York, see plan sponsors using this deadline extension to make sure data is accurate, complete and comprehensive.
Austin says, among his clients, he can’t think of one employer trying to do ACA reporting in house; they have hired third-party vendors to manage, oversee and produce reports for individuals and the IRS. “My sense is they were pushing right up to the edge, but felt like they were going to get it done. Now they can step back, review all processes and make sure forms will be accurate and new timing requirements will be met,” he says. Additionally, he notes that this gives some companies time to do a broader education to employees about what they will see.
Asked about employers holding up employees from filing their taxes by delaying the reporting of health plan coverage, Trabold says this is an excellent point and Paychex has had a lot of conversations with employers about it, but the IRS has come out with specific guidance about that. “The IRS says taxpayers should file taxes as early as possible to avoid fraud, but this is a little difficult if they receive health care reporting later,” Trabold notes. “Most employees won’t need this form to do their filing—only in situations where an employee is potentially getting a subsidy to buy insurance. The IRS very specifically told individuals that it is not necessarily to wait; they can rely on other sources about coverage and just maintain the employer’s form with other tax filing information.”
Trabold also says employers were having a challenge in getting test files to the IRS, so with the additional time they may be able to work out the technical issues with filing.NEXT: Will the Cadillac tax ever happen?
Employers, providers and consultants say the delay of implementation of the Cadillac tax is calling into question whether it will ever happen. “Did we just see a two-year delay or the beginning of a full repeal? Employers are wondering if this is just the first step and there may be future steps, so do they need to plan for it,” Kra says.
Austin says as a practical matter, when employers saw the Cadillac tax relief, they are so busy right now, it pushed this priority down the list. They are thinking about what could happen after the 2016 election; could the tax be repealed altogether? “I’m seeing a switch from a hot-burner issue to a wait-and-see issue,” he states. Trabold agrees that employers are thinking they may not ever have to worry about the Cadillac tax because there seems to be some bipartisan effort to repeal it.
However, employers should not forget about it altogether. According to Austin, it makes sense for employers to still plan for the tax because it could have a significant financial impact on them. But, since the issue has now been pushed out to 2020, he’s not seeing employers spending a lot of time on it.
Kra says employers need to plan—so they won’t be caught off guard—but that’s different from making changes for employees. The question is whether they want to continue to make changes to benefit offerings gradually so there will not be a draconian change overnight, or whether they want to hold off and recalibrate their strategies.NEXT: Strategies to avoid the tax revisited
Kra believes the measure to make the excise tax deductible for employers is almost irrelevant because most do not want to pay the tax and will do anything not to.
Every strategy to avoid the Cadillac tax is still on the table, he says. The biggest trend has been a switch to high-deductible health plans (HDHPs). HDHP prevalence has escalated—employer offerings as well as employee participation, according to Kra. Another strategy is to use next-generation wellness programs that are data-driven and lead to a measurable impact on cost savings. Kra says employers should think about that now to reap advantages in 2020.
A newer trend is carrier/provider integration, Kra notes. Employees are encouraged to use health care providers that have agreed to use certain cost-saving approaches in return for incentives from health insurance carriers. “Health care cost trends are a challenge regardless of the excise tax, so these are still strategies to consider,” he says.
According to Trabold, in order to avoid the Cadillac tax, Paychex was seeing flexible spending accounts (FSAs), health savings accounts (HSAs) and health reimbursement accounts (HRAs) fall out of favor because pre-tax contributions to those accounts will be included in the calculation to determine if a plan is subject to the tax. Employers also pulled back on benefits offerings.
But, with the extension and the thought that the excise tax may never happen, employers may reconsider offering these savings accounts because they are popular with employees. And, they may go back to a more comprehensive health care offering.“We are telling people, though, to continue to watch what is happening with the Cadillac tax; there’s no assurance the law won’t still exist in future,” Trabold says.
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