This is another installment of an ELGL original content series titled “Taking Triple Aim on Health Care” by Josh Schultz. Josh is a Client Services Associate at Medicare Rights Center, New York
December 24, 2013
By Josh Schultz
With all the uncertainty around the Affordable Care Act and recent changes to deadlines for insurance enrollment across the United States, readers should stay informed about their coverage options and obligations under the new law. Americans have heard a lot – including two articles from me – about President Obama’s promise that if you like your health care plan, you could keep it under the new law. This promise wasn’t true for some people who had health insurance through the individual insurance market. People who work for state or local governments and those who are represented by a union may be particularly affected by changes to their employer-related insurance. Some changes may be attributable to the health care law’s Cadillac tax on generous health insurance plans. More on that below.
But first, Health Insurance Deadlines as of December 24, 2013 (subject to random changes without notice)
Tuesday, December 24 – not December 23, but December 24 – is the last day to enroll in a health plan in- or outside of the federal health insurance marketplace for coverage that begins January 1. (Oregonians have until December 27 to select a plan through Cover Oregon if they applied for coverage by December 4.)
- December 31, January 10, or January 15 is the last day to pay your premium for January 1 health coverage that you selected by December 24. Which date applies to you depends on your insurance carrier, so check with them.
- March 31, 2014 is the last day to enroll in a health plan in- or outside of the marketplace, or to obtain coverage elsewhere (e.g. an employer, Medicaid) that meets Obamacare’s requirement that non-exempted individuals carry health insurance. If you don’t sign up by March 31, you could face an individual mandate tax for not carrying health insurance for three months or more during the year.
November 15, 2014 is the beginning of the Affordable Care Act annual enrollment period next year. This is the next chance you will have to enroll in coverage (again, this applies to most plans in- or outside of the individual marketplace) to begin January 1, 2015 if you missed the enrollment period for coverage in 2014.
If You Liked Your Plan and Couldn’t Keep It, You Are Exempt
On Thursday, the Obama Administration announced that if your plan was cancelled, you qualify for a hardship exemption to the Affordable Care Act’s requirement that you carry health insurance. If you qualify for a hardship exemption:
- You can choose not to purchase health insurance and, if you walk into a hospital emergency room, the hospital has to treat you if it accepts Medicare (this has nothing to do with whether or not you have Medicare). You will owe no tax for going without health insurance and shifting your health care costs to others.
- You can purchase a catastrophic health insurance policy with a lower premium, even if you are over 30 years old. Catastrophic policies only cover your health care after you pay a very high amount in covered out-of-pocket health care costs – up to $6,350 in many plans. People cannot receive a tax credit to make a catastrophic health plan more affordable, even if they are eligible for a tax credit in the marketplace.
- Most importantly, people who qualify for a hardship exemption can purchase health insurance outside of the initial enrollment period (October 1 – March 31). This means that if your plan was cancelled, you can wait until after March 31 to purchase coverage that could still take effect in 2014. People with a hardship exemption will not have to wait for a qualifying life event or until November 15, 2014 to enroll.
Coming in 2018: Employers Prepare for the Cadillac Tax
Until now, the media has focused on upcoming changes to the individual market for health insurance. This makes sense given that the Affordable Care Act’s primary function is to reform the individual insurance market – and because these individual market reforms take full effect in 2014. But as we move toward 2018, many of us receiving health benefits through an employer will see significant changes.
Background: The federal tax treatment of employer-related health insurance gives people who have insurance through their job a lucrative tax break by exempting health insurance premiums from federal income taxes; in most cases, the federal tax exemption means the cost of premiums is also exempt from any state or local income taxes. Employee compensation in the form of generous health insurance benefits (in exchange for lower salaries) has become the norm for people in many areas of the economy, including the public sector. By insulating employers and employees alike from the true cost of employer health insurance, the tax code encourages some employers and employees to “over-insure.” In turn, over-insured Americans consume more health care services, which can drive up costs for all market participants. Health plan premiums are tax-deductible for employers on their corporate tax returns, and the employer’s typically large contribution toward premiums is excluded from an employee’s taxable income on his or her personal return.
Finally, the share of premiums paid by employees – if an employee pays a portion – is paid on a pre-tax basis and exempt from all federal and most states’ personal income taxes, as described above. (The employee contribution to premiums remains subject to FICA taxes on personal income. However, FICA does not apply to the employer contribution toward employees’ health premiums, because the employer contribution is not considered income.) This tax policy, which is an outgrowth of World War II era wage controls, will cost the federal government over 3 trillion dollars between 2013 and 2019.
Because 60% of Americans benefit from the tax code’s treatment of employer-related health insurance, many people consider it a political third rail. See Barack Obama’s attack ad, “John McCain wants to tax your employer-provided health insurance,” based on a 2008 Presidential Debate:
Introducing a Tax on Cadillac Health Plans
Instead of addressing the tax treatment of employer-related insurance by reforming the portion of the tax code at issue, the Affordable Care Act created a new, 40% tax on high-value “Cadillac” health plans. The Obamacare Cadillac tax provides that, starting in 2018, all employer health plans with annual premiums above $10,200 for employee-only coverage, or annual premiums above $27,500 for coverage for an employee and spouse, or an employee and his or her entire family, will be taxed at 40 percent of the premium above the threshold amount. Employers and health insurance companies pay the entire tax, even though it applies to both the employers’ and employees’ share of health insurance premiums. This tax is indexed to the Consumer Price Index after 2020, and the CPI rises more slowly than the cost of medical care and health insurance premiums. As a result, the Cadillac tax will eventually apply to more and more health plans — unless employee benefits are redesigned and scaled back.
Employees Should Expect Higher Deductibles, Narrower Networks
Some employers are already taking action to scale back their health benefit plans in preparation for 2018. Deductibles will be increased, co-pays will change, employer contributions to Health Savings Accounts may decrease because those contributions count toward triggering the tax, and networks of providers will be “narrowed” to steer employees toward more cost-effective doctors and hospitals. We already see greater consumer exposure to health care costs and narrower networks directing patients to less costly doctors in Affordable Care Act plans available on the individual market in 2014. We can expect some of these changes to move into the employer market over the next three to four years.
Just like everything else related to the Affordable Care Act, the Cadillac tax is subject to change and may never be allowed to go into effect. A new administration might delay implementing the tax; Congress could alter the tax so that it applies more fairly to plans based on their actuarial value – the expected percent of total health care costs the plan covers – rather than basing the tax on the dollar amount of a plan’s premiums; finally, Congress might repeal the tax altogether. In the meantime, many employers are making changes to their health plan benefits so that if the Cadillac tax does take effect, they will be ready to avoid it. Even if the tax is repealed, changes employers make now are likely to remain.
- Governing.com: Public Employers Seek to Soften Impact of Obamacare Fees and Taxes
- National League of Cities: What the ACA’s “Cadillac” Tax Will Mean for Cities and Towns
- Health Affairs Policy Brief: Excise Tax on ‘Cadillac’ Plans
- PBS NewsHour: Will Your Employer Drop Coverage Under Obamacare?
- Slate: Another Piece of Obamacare Is Working as Extravagant Insurance Plans Are Pared Back