By Ric Joyner, MBA, CEBS, CFCI
Here is an impact chart from the Joint Tax Committee that Senator Kohl’s Staff sent us. A must read.
Some good news in this for the future is imposing a tax on costly benefits will help to drive higher deductible plans which promotes healthier lifestyles. Imposition of some the caps and taxes don’t start for a few years which is odd. But the impact on FSAs will start 12-31-10 for the ’11 plan year.
The bad angles are the reporting requirements, the high taxes and loss of some benefit offerings. This bill, if left intact will fundamentally change how employee benefits are delivered and should offset any potential savings because the work of reporting is passed to the employers and insurance companies.
Apparently, the GOP (republicans) are not on board with this bill. Conclusion: It is not bi-partisan which is a goal of the President’s. But my prediction remains that the Democrats will likely go this alone. They have control.
Remember this is a bill that will need to go into “markup” which will change after it is debated.
It appears the President will have a tough fight for this bill. Employers are not going to appreciate the added burden of reporting and the potential for taxes.
I am working, as well as others, on analyzing the bill which I will post on www.benefitblog.com
Here is an excerpt from the bill that should concern most practitioners and employers. Another burden is the amount of reporting that will be required and the excise taxes imposed.
The amount subject to the excise tax on high cost employer-sponsored coverage for each employee is the sum of the aggregate premiums for health insurance coverage, the amount of any salary reduction contributions to a Health FSA for the taxable year, and the dollar amount of employer contributions to an HSA, minus the dollar amount of the threshold. The aggregate premiums for health insurance coverage include all employer-sponsored health coverage including coverage for major medical, dental, vision and other supplementary health insurance coverage. The applicable premium for health coverage provided through an HRA is also included in this aggregate amount.
Under a separate provision (described below), an employer is required to disclose the aggregate premiums for health insurance coverage for each employee on his or her annual Form W-2.
Under the Mark, the excise tax is allocated pro rata among the insurers, with each insurer responsible for payment of the excise tax on an amount equal to the amount subject to the total excise tax multiplied by a fraction, the numerator of which is the amount of employer-sponsored health insurance coverage provided by that insurer to the employee and the denominator of which is the aggregate value of all employer-sponsored health insurance coverage provided to the employee. In the case of a self-insured group health plan, a Health FSA, an HRA or employer contributions to an HSA, the excise tax is allocated to the plan administrator. The employer is responsible for calculating the amount subject to the excise tax allocable to each insurer and plan administrator and for reporting these amounts to each insurer, plan administrator and the Secretary, in such form and at such time as the Secretary may prescribe. Each insurer and plan administrator is then responsible for calculating, reporting and paying the excise tax to the IRS on such forms and at such time as the Secretary may prescribe.
For example, for an employee who elects family coverage under a fully-insured health care policy covering major medical and dental with a value of $28,000, the amount subject to the excise tax is $7,000 ($28,000 less the threshold of $21,000). The employer reports $7,000 as taxable to the insurer, which calculates and remits the excise tax to the IRS.
Alternatively, an employee who elects family coverage under a fully-insured major medical policy with a value of $23,000 and a separate fully-insured dental policy with a value of $2,000 and who contributes $3,000 to a Health FSA has an aggregate health insurance coverage value of $28,000. The amount subject to the excise tax is $7,000 ($28,000 less the threshold of $21,000). 201
The employer reports $5,750 ($7,000 x $23,000/$28,000) as taxable to the major medical insurer and $500 ($7,000 x $2,000/$28,000) as taxable to the dental insurer, each of which then calculates and remits the excise tax to the IRS. If the employer uses a third-party administrator for the Health FSA, the employer reports $750 ($7,000 x $3,000/$28,000) to the administrator and the administrator calculates and remits the excise tax to the IRS. (If the employer is acting as the plan administrator of the Health FSA, the employer is responsible for calculating and remitting the excise tax on the $750 to the IRS).