CWA HEALTH CARE REFORM UPDATE: Excise Tax and Plan Value

How is “plan value” calculated for purposes of the excise tax on high value plans in the Affordable Care Act? Do the excise tax thresholds include copays and deductibles?

Under the Affordable Care Act, beginning in 2018 there will be a tax on high-cost employer provided plans. The tax will be applied to the excess value of plans above a certain threshold.

See here for more information on this tax.

For the tax, “plan value” is another term for the price paid for coverage. For fully-insured plans, this will be the total premium paid by employees and the employer to provide coverage. For self-insured plans, this will correspond to the COBRA rate paid for unsubsidized coverage. This will include company contributions to tax-preferred health savings plans (FSAs, HRAs, and HSAs).

Out-of-pocket payments made by individuals (such as copays, deductible, and coinsurance) are not included in the value of the plan. However, these payments are a factor in determining the value of the plan. Decreasing copays or the deductible in a health plan would increase the share of costs paid by the plan, and increase the price of the coverage, making the plan more valuable. Conversely, increasing out-of-pocket payments (larger copays, bigger deductible) would decrease the share of costs paid by the plan, and thereby decrease its value.

The value of the plan is also determined by the health costs of those enrolled in the plan. Plans that cover older, sicker people will have higher costs and a higher price tag, meaning it will be considered a more “valuable” plan. The law allowed for adjustments to the tax based on this, but the final rules have not been written.

Check out Health Affairs for a complete overview of the issues around the tax on high cost health plans.